PAYROLL INSIGHT
● is under a contract to do salaried-hours work, and ● is paid under his contract for a set basic number of hours in a year ● is entitled under his contract to an annual salary for those hours, and ● is paid in equal weekly or monthly instalments. With regard to the second bullet point above, note that the hours do not have to be specified as an annual value. They can be expressed as a weekly number of hours as is often the case in contracts of employment. Guidance on Gov.uk states that “Salaried hours workers’ contracts might not state the basic number of hours as an annual figure, but it must be possible to work this out [emphasis added]. Workers and employers can then use this figure to make sure the rate of pay is at least the minimum wage.” How the annual figure is to be worked out isn’t specified. If we assume annual hours of 1,950 (52 × 37.5), at the NLW this equates to an annual salary of £14,625. Regulation 22 of the Regulations specifies how the salaried hours of work are to be calculated in particular PRPs. For a monthly PRP, the annual hours are divided by 12; for a weekly PRP, the annual hours are divided by 52. In a monthly PRP, payment at the NLW is met since the divisor used to convert the annual salary and the annual hours to their monthly equivalents is the same (i.e. 12): £14,625 ÷ 12 = £1,218.75 ÷ 162.50 (i.e. 1,950 ÷ 12) = £7.50, so NLW paid. However, in a weekly PRP this may not be the case. Regulation 22(2) specifies that the annual hours must be divided by 52.
But how does your payroll software convert the annual salary to a weekly amount? If the annual salary is divided by 52 then all other things being equal, there’s no problem. However, if the annual salary is converted by dividing by (say) 52.14 the employee will not have been paid the NLW for that PRP: £14,625 ÷ 52.14 = £280.49 ÷ 37.5 (i.e. 1,950 ÷ 52) = £7.48, so NLW not paid. The Regulations regarding salaried hours work are designed to ensure that salaried hours workers receive at least the NMW hourly rate even though their hours may fluctuate widely between pay periods. Although we are dealing with annual salary and annual hours, the assessment period for determining whether the NMW has been paid is based on the employee’s PRP. This will depend on the pay frequency in the employee’s contract. Thus, the PRP will be a week for a weekly paid employee and a month for a monthly paid employee. Although the check is performed on a PRP basis, a record needs to be maintained of actual hours worked over the calculation year. Employers who pay salaried staff apparently well above the NMW/NLW can also breach the Regulations as the following illustrates. This is a variation on the scenario where employees are not paid for all hours worked. For monthly paid employees, the calculation year will be: ● if they start on the first day of a month, say 1 May, 1 May to 30 April in the following year while continuing in the same job
● if they start part way through a month, say 15 May, 15 May to 31 May of the following year and then starting on 1 June and ending on 31 May each subsequent year while continuing in the same job. The following example assumes an annual salary of £25,000 and weekly hours of 37.5. This results in a contractual hourly rate of £12.82, monthly hours of 162.50, monthly salary of £2,083.33 and annual hours of 1,950. Where payment is made for all additional hours worked, absences are paid in full and there are no additional payments or deductions, then it is relatively easy to ensure that the Regulations are being adhered to. The salary for the year can be divided by the hours worked for the year and the result compared to the relevant NMW rate. Complications arise where: ● no payment is made for additional hours worked, and ● the annual hours are exceeded before the end of the calculation year. Contracts of employment, when stating the hours of work, quite often qualify this with a clause along the lines of ‘[you] will be expected to work those hours necessary to complete the tasks in hand’. Implicit in this is that there will be no additional payments for the extra hours worked. This may then be made explicit in a staff handbook or other relevant document confirming that overtime is not payable. Table 2 illustrates a possible pattern of working. The extra hours worked are 35.50 each month, approximately eight hours per week, so there are no issues with hours worked under the Working Time Regulations
Table 2
Month
Basic hours
Extra hours
Cum. hours
Paid
NMW add’n pay
April
162.50
35.50
198
£2,083.33
May June
162.50 162.50 162.50 162.50
35.50 35.50 35.50 35.50
396 594 792 990
£2,083.33 £2,083.33 £2,083.33 £2,083.33
July
August
September
162.50
35.50
1,188
£2,083.33
October
162.50
35.50
1,386
£2,083.33
November
162.50
35.50
1,584
£2,083.33
December
162.50
35.50
1,782
£2,083.33
January
162.50
35.50
1,980
£2,083.33
£185.87
February
162.50
35.50
2,178
£2,083.33
£620.42
March
162.50
35.50
2,376
£2,083.33
£620.42
| Professional in Payroll, Pensions and Reward | March 2018 | Issue 38 22
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