Payroll insight
Unravelling the Gordian knot
Neil Tonks, of MHR’s legislation team, cuts through the tangled issues of a legally-enforced overtime premium proposed in the Taylor review
T he publication of The Taylor Review of Modern Working Practices earlier in the summer led to a lot of media coverage. Most of this rightly concentrated on the issue of the ‘gig economy’ and the suggestion in the report that many of the people who work within it should be treated more like employees and therefore pay tax and National Insurance contributions through pay as you earn (PAYE). This would involve the introduction of a new classification of worker: the ‘dependent contractor’. This would be a sort of half-way house between full employment and self-employment, granting the people affected some employment rights but also bringing them within PAYE. Interesting, though we’re not sure how it simplifies things. It can already be very difficult to decide whether a person is genuinely self-employed or not, and having a new classification sitting in an already grey area would be unlikely to simplify the process. However, there’s another suggestion in the report which got our attention. This relates to the national minimum/ living wage (NMW/NLW), and doesn’t seem to have had much media exposure, even though it has some far-reaching implications. I guess part of the reason for this lack of coverage might be that it’s in a section headed ‘Unravelling the Gordian knot’. I don’t know about you, but I certainly had no idea what that means but according to Wikipedia the Gordian knot is a legend originating in the ancient city of Gordium which is used as a metaphor for an intractable problem. This section of the report proposes
that “The Government should ask the LPC [Low Pay Commission] to consider the design and impacts of the introduction of a higher NMW rate for hours that are not guaranteed as part of the contract”. Think about that for a minute. Hours that are not part of the contract should attract a higher rate of NMW. In effect, a legally-enforced overtime premium, at least for those paid the NMW/NLW. (We’re assuming the reference to NMW includes the NLW as it would be strange if this initiative were only available for those under 25.) ...a legally- enforced overtime premium, at least for those paid the NMW/NLW For people on zero-hours contracts, this would mean that all their hours would be paid at the enhanced rate, increasing the cost to employers of operating this type of contract and potentially making them less attractive. A cynic may suspect that this possible impact wasn’t lost on the authors of the report; (there were several, not just Taylor). For those on contracts with specified hours, any additional hours worked would be at the higher rate. This is more interesting or controversial – depending on your view – because, at the moment, it’s common for enhanced rates not to kick in until a part-time worker has exceeded the full-time hours. With the higher rate effective on all additional hours, you’d end up with the situation
where two people could work the same number of hours in a particular week but be paid different amounts just because their contracts had different numbers of guaranteed hours. This doesn’t seem to reflect the fairness which is a recurring theme of the report. It gets even more interesting if you consider a scenario where most full-time workers are male and most part-timers female (which is not an uncommon situation). If the part-timers happened to be more likely to work extra hours than their full-time colleagues, you’d end up with a situation where the average hourly pay of the females was greater than that of the males. Great for the employer’s gender pay gap reporting, but I can already hear the equalities lawyers licking their lips in anticipation of a legal challenge. Legalities apart, the suggestion would serve to make pay calculations even more complex than they already are. Indeed, there may be added complexities not yet mentioned. For instance, if it applied only to people paid the minimum wage, it could be sidestepped simply by paying everyone 1p more per hour, so there may be some additional rules to prevent such things. We look forward to the LPC holding a consultation on this should they be asked to pursue it. It could be rather lively. So, interesting times may be ahead if the government acts on this particular part of the report. It will be important that employers have a payroll system which can cope with the extra pay rates and calculations which will inevitably go with adding such complexity to the minimum wage. n
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| Professional in Payroll, Pensions and Reward |
Issue 33 | September 2017
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