PAYROLL INSIGHT
NMW – avoiding the pitfalls
SamanthaMannMAATMCIPPdip, CIPP senior policy and research officer, spotlights commonplace errors and discusses how they can be avoided
T he introduction of the national party in 1997 but it is in recent years that the minimum wage has regularly captured the headlines as increasing numbers of employers face the shame of being named for failing to pay the NMW to their workers. The reason for being issued a notice of underpayment (NoU) by HM Revenue & Customs’ (HMRC’s) NMW enforcement teams, however, may not be down to malicious intent by the employer as the reasons are increasingly due to technical error. You will have read in earlier articles about the publication of lists that detail common errors made by employers as they pay their workers. We know, all too well, that error caused by ignorance of the law is never considered a defence. Indeed, employers that have settled any arrears in full to their workers before HMRC have stepped over their threshold may still be included in the naming-and-shaming list maintained by the Department of Business, Energy and Industrial Strategy (BEIS) where an inspection process has begun. minimum wage (NMW) was hailed as a vote winner for the Labour consultation on the NMW and salaried workers and salary sacrifice, that ran from December 2018 to March 2019, will have closed (see on your behalf). The consultation focussed on a small number of key areas of concern for employers and the payroll professionals who serve them Consultation By the time you read this the BEIS
relating to: ● ● pay reference periods allowable for salaried hours workers ● ● overtime and pay premia ● ● salary sacrifice ● ● compliance, and ● ● anything else that could be addressed within regulations without causing detriment to workers. We know from the response numbers alone how important this area continues to be for you all. ...increasing numbers of employers face the shame of being named for failing to pay the NMW... Salaried hours workers BEIS guidance (https://bit.ly/2DD9JaG) reminds us that for a worker to be a salaried hours worker, they are: ● ● under a contract to do salaried-hours work ● ● paid under their contract for a set basic number of hours in a year ● ● entitled under their contract to an annual salary for those hours ● ● paid in equal weekly or monthly instalments – e.g. 12 monthly or 52 weekly instalments. Much has been made about the use of a divisor e.g. 52, 52.14, 52.17 and many more have been mentioned over recent
years. Neither BEIS nor HMRC promote a specific divisor that employers should use; instead, they confirm that it is for the employer to ascertain how the annual number of hours that the salary represents are calculated. The method to be used by the employer where the total number of hours isn’t detailed within the contract, needs to be clear. The advantage of operating a salaried hours contract is that it provides an equal amount of pay (and hours) to be applied across each weekly or monthly pay reference period (PRP) regardless as to the hours worked within the PRP. If an employee exceeds this annual amount during the year – they will need to be paid at least the minimum wage for each hour worked in excess of the annual figure. Equally if an employee leaves part-way through their calculation year the employer needs to be able to confirm that they have not been underpaid at that point. For workers in sectors that experience significant peaks and troughs of work due to seasonal demand this can easily occur. The method used by the employer to calculate that number and monitor if that annual number is exceeded must be known and clearly understood by all. Fee for AEOs The NMW regulations don’t mirror other areas of law and the deduction fee that employers are permitted to take for administering an attachment of earnings orders (AEOs) – such as those for fines or unpaid council tax – is a good example of
| Professional in Payroll, Pensions and Reward | April 2019 | Issue 49 18
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