MY CIPP
The CIPP’s Advisory Service team provides answers to popular questions
Salary sacrifice rules Q: An employee is currently in a salary sacrifice pension scheme. They have asked if they’re able to sacrifice their full salary into that pension scheme, resulting in them receiving £0 net pay. Would this go against national minimum wage (NMW) rules, or is this allowed? A: This does indeed go against NMW regulations. A salary sacrifice arrangement (including a pension salary sacrifice arrangement) cannot take an employee below NMW as the salary has been sacrificed prior to payment, meaning a reduction in pay. You would need to ensure the employee is paid at least the NMW on the post-reduction gross pay. Please see the following link for clarification and further information: https://ow.ly/mgf450TW7Zx.
the next payroll run? Do we then update the NI number once it’s been received? A: As this individual has passed the appropriate right to work checks, you can add them onto the payroll system with a blank NI number and update it once the information has been provided. Refrain from entering a temporary NI number, such as TN123456M, and leave the field blank until the correct NI number has been received HM Revenue and Customs (HMRC) systems will automatically check your employees’ NI numbers on your first full payment submission (FPS), or when you report starting details for a new employee. If you want to find or check an employee’s NI number, you can do so by sending an NI verification request through your payroll software. Correct pro-ration of salary Q: Could you please advise on the correct method for calculating a daily rate for an employee who is paid an annual salary? Are there any legal considerations when determining whether to calculate on a calendar day or a working day basis? A: The company can determine whether it pro-rates on a calendar day (1/365th) or a working day (1/260th) basis. The considerations here are as follows: l the method must be fair and consistent across the organisation l the contracts or policies in place must be followed. Where a contact is silent on this point, the accrual method used should be that of the calendar day (1/365th), in accordance with The Apportionment Act 1870.
As the pro-ration of salaries is the choice of each company, and is usually written in company policy, if you’re considering changing the method, it would be advisable to seek employment law / human resources advice.
What’s the correct method for pro-rating an annual salary – 1/260th or 1/365th?
Automatic enrolment (AE) opt-outs
Q: A future employee has already asked to opt out of the pension scheme. Does the employer have a legal obligation to enrol the employee into the pension scheme? Our understanding is that this is the case, and that the employee then has a period of one month to opt out of the scheme, and to receive a refund of the pension taken from their pay in this employment? A: An employee must wait until they’re assessed before opting out of an AE pension scheme. If further information or clarification of this point is required, please direct the employee to The Pensions Regulator website here: https://ow.ly/ ftf150TW98R. The following extract explains this: “When a jobholder can opt out
Are there any limits to the amount an employee can sacrifice into a pension scheme?
National Insurance (NI) numbers Q: A new starter hasn’t yet been provided with an NI number. They do, however, have a British passport to prove their right to work in the UK. Can they still be added to, and paid through,
| Professional in Payroll, Pensions and Reward | December 2024 - January 2025 | Issue 106 9
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