COMPLIANCE
When it reduces pay for national minimum wage (NMW) purposes of course! But how can that happen, you ask? Ian Thomas, partner at EY, explains how… When is a bonus not a bonus?
T he NMW Regulations 2015 define: l salaried hours work (probably most of the employed practitioners reading this article) l time work (e.g., junior staff working in the hospitality industry) l output work (e.g., individuals working in the textiles trade) l unmeasured work (anyone not falling into one of the three categories which are listed above). The holy grail for businesses in most cases is to fit employees who are paid a salary into salaried hours work. However, there are several conditions to meet to enable this, which we won’t go into in this article (safe to say, it isn’t simple). If any one of the conditions isn’t satisfied, then it’s likely the employee will fall into the unmeasured category discussed in the Regulations. The broad implication of this is that,
instead of considering whether NMW has been met over the course of a year (taking 'good’ pay reference periods (PRPs) with ‘bad’ and averaging), it’s necessary to consider whether NMW has been paid in each PRP. This can result in a breach of NMW in PRPs where the pay is the same (typical for a salaried employee), but the hours happen to have spiked in that PRP "So, as ridiculous as it might seem, the simple act of paying an employee more money could cause their pay to fall below national minimum wage"
(e.g., in a campaign period or at year end in an accounts team). To be classed as a salaried hours worker, a worker must only be entitled to receive an annual salary or an annual salary and performance bonus. Here’s where things get a bit perverse for any client who pays monthly bonuses to staff based on performance against sales targets. The very definition of a performance bonus itself isn’t straightforward. And then, if the definition isn’t met, an employer who pays a salary (which, for a salaried hours worker, would meet NMW) could suddenly find itself in breach of NMW rules if the worker is reclassified as being unmeasured. So, as ridiculous as it might seem, the simple act of paying an employee more money could cause their pay to fall below NMW! My advice – review the terms of those bonus schemes carefully. n
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| Professional in Payroll, Pensions and Reward |
Issue 93 | September 2023
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