Feature topic - Payroll’s practical role in workplace financial awareness
to allow for a review of the process, the government announced in February 2020 its intention of resuming the practice of publicly naming businesses that do not pay their workers the NMW (http:// ow.ly/GEoK30rztwv). Some fundamental changes were made to the scheme, such as the increase to the threshold for naming from £100 to £500. Naming rounds were also set to take place more frequently to try and deter non- compliance with NMW regulations. The most recent set of names was published in December 2020 (http://ow.ly/ HtTR30rz8nE). Common pitfalls Whilst adherence to NMW rules may superficially appear simple, there are several considerations for payroll professionals when calculating the NMW, and the associated regulations can be complex and challenging at times. Therefore, it felt appropriate to include here discussion of some of the most frequently encountered obstacles relating to compliance with NMW regulations, so that payroll professionals can try and avoid making mistakes of this nature. Please note that this is just a handful of some of the problems that arise for those calculating and processing the NMW, and is not an exhaustive list. ● Change to NMW rates – There will be various points at which the NMW rate paid to an employee may change. An example is where there is a change to rates from 1 April 2021. Nowadays, most payroll software packages have the functionality to automatically capture where NMW changes need to be implemented, but this should always be checked to ensure that it works correctly. Where payroll software does not offer this feature, payroll departments need to make sure that they have robust processes in place to ensure that NMW rates are changed when required. Failure to pay at the correct rates can result in substantial fines for non-compliance. Where new rates are to be implemented from 1 April 2021, they apply from the next ‘pay reference period’. The ‘pay reference period’ is the period that the pay covers and cannot be longer than a month. If we take the example of an employee paid on the 15th of each month, and whose ‘pay reference period’ covers a month, the following would apply: 16
March–15 April – paid at old rate; 16 April–15 May – paid at new rate. The same applies when it is an employee’s birthday which means that they transfer from one NMW rate to another. ...make sure that they have robust processes in place
volunteer which could then lead to them being classified as a ‘worker’, the NMW regulations would apply for all of the hours that the volunteer worked. ● The accommodation offset – The effect of the accommodation offset on NMW depends on how much an employer decides to charge for accommodation provided. The offset is calculated by ‘pay period’ and applies irrespective of whether the cost is deducted from the worker’s wages prior to payment or the worker pays the cost after they have received their wages. If an employer opts to charge more than the offset rate, the difference is deducted from the worker’s pay when calculating the NMW. In effect, this means that for the purpose of calculating the NMW, the greater the accommodation charge the lower an individual’s pay will be. Where the accommodation charge sits below or exactly at the offset rate, this has no impact on the worker’s pay for the purposes of NMW. Where the accommodation is free, the offset rate can be added to the pay of the worker when calculating the NMW. The future of the NLW The NLW/NMW rates are not decided on a whim, but extensive research is carried out by the Low Pay Commission (LPC) (http://ow.ly/pUaQ30ry5FK) which is an independent body that makes recommendations to government about the rates. The government has now published its remit to the LPC for 2021, which requests that the LPC makes recommendations in relation to achieving the government’s goal of setting a NLW of two thirds of median earnings by 2024. Additionally, the reach of the NLW is to be widened to those aged 21 and over within the same timeframe, as opposed to being restricted to those aged 23 and over (from 1 April 2021). This will be applicable UK-wide and will only be achieved should various external economic circumstances allow. The government expects the LPC’s response by no later than October 2021. The LPC ordinarily publishes consultations annually to collect views and feedback on potential future NMW/NLW rates. The CIPP will be formally responding to this, so keep your eyes peeled for a survey and a virtual thinktank roundtable meeting on the topic. n
to ensure that NMW rates are changed when required
● Apprentices – Great care needs to be taken in relation to the correct payment of apprentices, who can be paid at the apprentice rate if they are under the age of 19 or are aged 19 or over and in the first year of their apprenticeship. If they are 19 or over and have completed the first year of their apprenticeship, they must be paid at the minimum wage relevant to their age group. Similarly, once an apprentice has completed their apprenticeship, they will need to be paid at the NLW/NMW that applies to their age. It is highly likely that monitoring apprentices will need to be a manual process, as it is doubtful that payroll software will include the functionality for identifying when either an apprenticeship has ended or the apprentice has completed their first year and is age 19 or over. So, it is particularly important for payroll departments to be mindful of this. One useful tip would be to set up a reminder to check an apprentice’s situation or age at certain intervals to ensure NMW compliance. ● Voluntary work – Volunteers may understandably expect employers to reimburse them for the expenses they incur whilst carrying out voluntary work. Examples could include, but are not limited to, the cost of any food and drink consumed whilst volunteering or the costs incurred as a result of travel. Employers can do this without any NMW implications arising. Similarly, this would also be the case if they offer a small gift (e.g. a box of chocolates) as a way of saying ‘thank you’. In scenarios, however, where other payments are made to the
31
| Professional in Payroll, Pensions and Reward |
Issue 69 | April 2021
Made with FlippingBook - Online magazine maker