Getting payroll right

Chancellor Sajid Javid's pledge to raise the National Living Wage (NLW) over the next few years was one of a series of recent reminders that employers need to be watchful of meeting employment rights. The government's 'Good Work Plan' consultation ended in October and may mean changes to the enforcement of employment laws. So, complying with payroll issues from salary to holiday entitlements, payslips to pensions is increasingly important for employers.  

The National Minimum Wage and the National Living Wage

Since the establishment of the National Minimum Wage (NMW) in 1999, there have been constant changes to both rates and regulations, with perhaps the biggest being the introduction of the National Living Wage (NLW) in 2016.

The minimum wage is paid at an hourly rate, with payment bands depending on age, and special provisions applying to apprentices. The NLW is the minimum wage for those aged 25 and over, whilst the NMW applies to those above school leaving age and individuals aged under 25. For convenience, we refer to 'minimum wage' to cover both the NMW and the NLW.

Current minimum wage rates

Minimum wage rate Hourly rate from 1 April 2019
NLW £8.21
21-24 year-old rate £7.70
18-20 year-old rate £6.15
16-17 year-old rate £4.35
Apprentice rate £3.90

Recently, Chancellor Javid pledged to raise the NLW to £10.50 within the next five years and lower the qualifying age for the NLW from 25 to 21. Getting minimum wage obligations right can be challenging for employers, and failure to pay the minimum wage correctly can lead to penalties. A notice of underpayment will calculate the arrears of pay to be paid and the penalty set at 100% of the total underpayment, which can be doubled to 200%, unless the arrears are paid within 14 days. The maximum fine for non-payment is £20,000 per worker, and employers who fail to pay will be banned from being a company director for up to 15 years.

Payslips and holidays

Employees are legally entitled to receive a payslip showing their earnings before and after deductions. However, one in ten workers are not currently receiving a payslip, according to research from think tank the Resolution Foundation. This makes it hard for them to calculate whether they are receiving the right level of pay, pension and holiday entitlement, and check Pay as You Earn (PAYE) deductions.

The research also showed that around one in 20 workers receive no paid holiday entitlement, despite being legally entitled to at least 28 days' paid holiday a year. In addition, failure to offer staff workplace pensions under auto-enrolment rules can end in prosecution, with up to two years' imprisonment and unlimited fines possible.

The 'Good Work Plan'

The government's recent 'Good Work Plan' consultation examined a proposal to create a new single enforcement agency to regulate employment law. This should leave it better placed to tackle labour market violations than the multiple bodies currently operating.

The government is being encouraged to target investigations into labour market violations into sectors like hotels and restaurants, along with firms who make large use of atypical employment contracts, as that's where abuse is most prevalent.

Getting payroll right

Administering payroll and complying with the Real Time Information (RTI) regulations can be burdensome for businesses. The creation of customised payslips and the effective administration of PAYE, national insurance, Statutory Sick Pay and Statutory Maternity Pay is a time-consuming process. Many small and medium-sized enterprises (SMEs) may not have the resources or expertise to handle this themselves, but professional payroll services are available.

Employment law and the minimum wage are complex areas, and we have only been able to touch on key points here. We would be only too pleased to provide any further assistance you may need. Please contact us.

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