All things 'pay related'

This week’s offering is all around pay – reflecting the ongoing challenging climate in relation to wages & cost of living.

National Minimum Wage/National Living Wage

In the UK, the minimum wage is the minimum pay per hour almost all workers are entitled to. The UK minimum wage is more formally known as the national minimum wage (NMW) and the national living wage (NLW), with the NMW applying to workers aged between 16 and 22 years, and the NLW applying to workers aged 23 years or above.

What is the current minimum wage?

There are different NMW/NLW wage bands and rates, and these are usually updated in April each year. The current rates are as follows:

Apprentice (for those aged under 19 or aged 19 or over and in the first year of their apprenticeship): £4.81 per hour

Under 18: £4.81 per hour

Aged 18-20: £6.83 per hour

Aged 21-22: £9.18 per hour

Aged 23 and over: £9.50 per hour (NLW)

There is also the ‘London living wage’ (LLW), which is currently £11.05 per hour. The LLW is calculated independently to reflect the high cost of living in the capital, giving the worker in London and their family enough to afford the essentials. However, while recommended to employers as the benchmark wage band to offer staff, they are not legally required to pay their workers the LLW, so they can choose whether to pay it or not.

Who is entitled to the NMW or NLW?

Anyone employed as an employee or worker, whether full time, part time, casual, zero hours or paid by commission is entitled to the NMW or NLW.   

The following types of workers are not entitled to the NMW or NLW:

self-employed (by choice);

a volunteer (by choice);

non-executive company directors;

armed forces;

work experience as part of a course/work shadowing; and

under school leaving age.

 How is the NMW calculated?

The NMW pay is calculated on gross pay (pre-tax and national insurance deductions). Gross pay includes basic pay and other payments based on how well you do your job; for example, commission or other performance-related pay.

Some payments must not be included when the minimum wage is calculated. These are:

loans or advances of wages;

pension payments;

payments that should not be included for the employer’s own use or benefit; for example, if the employer has paid for travel to work;

things the worker bought for the job and is not refunded for, such as tools, uniform and safety equipment;

tips, service charges and cover charges; and extra pay for working unsocial hours on a shift. 

What happens if employers do not pay minimum wage?

It is against the law to pay eligible workers below the minimum wage. Workers can try to resolve the issue with their employer or former employer first. If this fails, they can either:

1.      Report the underpayment to HM Revenue & Customs (HMRC) 

Anyone can report an employer to HMRC for not paying the minimum wage (and the initial report can be anonymous). If it is found that an employer has not paid the minimum wage, HMRC can send a notice of arrears plus issue a penalty for not paying the correct rate of pay. 

HMRC officers have the right to carry out checks at any time and ask to see payment records. It is the employer’s responsibility to keep records proving their payments. 

The maximum fine for non-payment is £20,000 per worker. Further, employers that fail to pay can be named publicly and banned from being a company director for up to 15 years. 

The cost of underpaying employees can also be detrimental to reputation. HMRC will ‘name and shame’ employers paying less than the minimum wage, which could prove costly when trying to recruit talent.

Or:

2.      Make a claim to an employment tribunal claim against the employer

The worker can go to the employment tribunal directly and submitting a claim is free. Workers can also contact the confidential Acas helpline to help to try to resolve the dispute (0300 123 1100).

 To summarise:

Do:

Pay the NMW

Ensure calculations are undertaken to be sure you are paying at least the NMW

Check for changes to the NMW – the rates usually change annually each April

Consider paying the LLW if your workers live and work in London

Don’t:

Assume just because a worker receives an annual salary that they are being paid the NMW

Think you will never get caught if you are paying below NMW. The fines and bad publicity are really not worth it! Be prepared to be ‘named and shamed’

 National Insurance Contributions

The threshold at which employees start to pay national insurance changes from July – here are some of the key facts about how National Insurance contributions (NICs) work:

 Who pays NICs?

National Insurance contributions (NICs) are a tax paid by employees and the self-employed on their earnings, and by employers on the earnings of those they employ. NICs are not charged on those with low earnings, or on pension income or investment incomes (such as dividends or capital gains). Employee and self-employed NICs are not levied on the earnings of those over the state pension age.

Rate Changes

On April 6th, the rates of NICs increased by 1.25 percentage points. This means, for example, that the main rate for employees rose from 12% to 13.25%.

The increase in NICs was legislated as a means to increase spending on health and social care. From April 2023, the 1.25 percentage point NICs increase will be replaced by a new Health and Social Care Levy (i.e. NICs rates will revert to their current levels). At that point, the Health and Social Care Levy is also due to be applied to the earnings of those above the state pension age.

In the 2021-22 tax year, the main rates of employee and self-employed NICs started to be paid on earnings (or profits) above £9,568. From April 6th 2022, this threshold increased to £9,880 (thresholds tend to increase each April to account for inflation).

From July 6th 2022, the threshold will be increased to £12,570, reducing tax bills. This change was announced in the Spring Statement. The higher-rate threshold will remain at £50,270.

Taking the higher rates and the higher threshold together, those earning less than around £35,000 will see a fall in their overall NICs bill in 2022-23 relative to 2021-22. Those earning more than this will see an increase in their overall NICs bill.

Hybrid working and pay and benefits

A potentially divisive issue for the future of hybrid working is whether those who have to attend the workplace should attract a pay premium to compensate for additional commuting costs. There are significant inclusion and equality risks associated with differentiating pay for hybrid and office-based staff:

It could indirectly discriminate against people with disabilities or long-term health conditions and those with caring responsibilities, who are more likely to be women and older workers.

It will also potentially widen existing pay gaps and make it harder to recruit people who don’t live locally, which will restrict the talent pool that employers can tap into.

According to research carried out by the CIPD, it seems that the majority of employers recognise these downsides since most organisations (68%) have not reduced pay or benefits for employees who are predominately working from home – and do not plan to do so in the future. Just 4% of organisations have reduced pay or benefits for employees who are predominantly working from home, although this practice is slightly more common in the public sector (7%). However, 13% of respondents said their organisation was planning to do this, rising to 15% in the public sector.

At the other end of the spectrum, around 1 in 10 organisations have not reduced pay or benefits, and have actually contributed to cover the costs faced by employees who are mostly working from home. This is more likely to happen in the voluntary (17%) sector than in the private (12%) and public (6%) sectors.

Food for thought indeed.