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PAYROLL ON POINT APRIL 2020
CONTENTS X National MinimumWage X Statutory Sick Pay X Statutory Maternity, Paternity, Shared Payments (SMP, SAP, SPP and ShPP) X Pension contributions X Employment allowance X Parental Bereavement leave X Holiday Pay Reference period for flexible working hours X IR35 private sector reforms postponed X Share plan reporting 2020 X Class 1A National Insurance on Termination Awards X Importance of cash flow forecasting X Coronavirus – impact on Payroll
Welcome to the spring edition of Payroll on Point. This newsletter is designed to help you keep up to date with legislative changes, new developments and key dates in the future. We hope you will find Payroll on Point informative and if you have any questions on the topics raised please don’t hesitate to get in touch. Kind regards,
MARIA MASON DIRECTOR
NATIONAL MINIMUMWAGE
The Government is again increasing the National Minimum and National Living Wage rates on 1 April 2020. These changes are being made in line with the Low Pay Commission recommendations, which is an independent body made up of employers, trade unions and experts whose role is to advise the Government on the minimum wage.
A new rate applies when the next pay reference period begins on or after the date a rate increase begins, or, an employee reaches a new age bracket. The apprentice rate applies to apprentices under the age of 19 or those on the first year of their apprenticeship, only. Those who fall outside this criteria must receive the rate applicable to their age group.
As an employer, it is your responsibility to ensure your employees are paid in accordance with the guidelines provided, as BDO will not make automatic changes to staff members’ salaries to accommodate these changes. Therefore, you must advise us of any changes to rates of pay, or annual salary, effective from April 2020.
25 AND OVER
YEAR
21 TO 24 18 TO 20 UNDER 18 APPRENTICE
April 2019 (current) £8.21
£7.70 £8.20
£6.15 £6.45
£4.35 £4.55
£3.90 £4.15
April 2020
£8.72
IDEAS | PEOPLE | TRUST
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PAYROLL ON POINT | APRIL 2020
STATUTORY SICK PAY (SSP) Revised rates of SSP are payable from the first day of the new tax year (6th April 2020).
The changes detailed below apply to the average weekly earnings (AWE) at or above the Lower Earnings Limit, which is £120 per week in 2020/21:
NUMBEROF QUALIFYING DAYS INWEEK
1 DAY TO PAY £13.70 £15.98 £19.17 £23.97 £31.95 £47.93 £95.85
2 DAYS TO PAY £27.39 £31.95
3 DAYS TO PAY £41.08 £47.93
4 DAYS TO PAY £54.78
5 DAYS TO PAY £68.47
6 DAYS TO PAY £82.16
7 DAYS TO PAY £95.85
UNROUNDED DAILY RATES
£13.6928 £15.9750 £19.1700 £23.9625 £31.9500 £47.9250 £95.8500
7 6 5 4 3 2
£63.90 £79.88 £95.85
£38.34 £57.51
£76.68 £95.85
£95.85
£47.93
£71.89
£63.90 £95.85
£95.85
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Whilst SSP is always payable from the first day of the new tax year, other statutory payments apply from the week that commences the first Sunday in April (April 5th 2020): STATUTORYMATERNITY, PATERNITY, SHARED PAYMENTS (SMP, SAP, SPPANDSHPP)
RATES EFFECTIVE from week starting on or after Sunday
5THAPRIL 2020
Earnings Threshold (LEL)
£120
90% of average weekly earnings (AEW)
SMP / SAP weekly rate for first 6 weeks
X SMP weekly rate for up to next 33 weeks X SAP weekly rate for up to next 33 weeks
£151.20 or 90% of employees AEW whichever is lower
X SPP weekly rate X ShPP weekly rate
SMP, SAP, SPP and ShPP optional daily rate Percentage of payment recoverable
£21.60
92%
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PENSION CONTRIBUTIONS
The minimum contribution levels will not be changing from April 2020. Therefore, the following rates will still apply:
BASEDONQUALIFYING EARNINGS
MINIMUM CONTRIBUTION
EMPLOYEE EMPLOYER TOTAL
April 2020
5%
3%
8%
Qualifying Earnings thresholds will remain in line with the National Insurance thresholds from April 2020 (£6,240 – £50,000)
BASEDON BASIC PAY
MINIMUM CONTRIBUTION
EMPLOYEE EMPLOYER TOTAL
April 2020
5%
4%
9%
BASEDON BASIC PAY (Providing Basic Pay is at least 85% of total earnings)
MINIMUM CONTRIBUTION
EMPLOYEE EMPLOYER TOTAL
April 2020
5%
3%
8%
BASEDONTOTAL PAY
MINIMUM CONTRIBUTION
EMPLOYEE EMPLOYER TOTAL
April 2020
4%
3%
7%
EMPLOYMENTALLOWANCE From 6 April 2020 HMRC are introducing a cap on employment allowance eligibility. You will only be able to claim the allowance if the Employer Class 1 National Insurance bill was below £100,000 in the previous tax year. For connected employers, the total Employers Class 1 NI liability for all entities added together must be below £100k in the previous year to be eligible to claim employment allowance from 2020/21. For the purpose of Employment Allowance, Companies are connected if the following applies: X a company has control of another company X they are under the control of the same person or people, for example companies linked in a group If connected employers have a liability under £100,000 for the previous year, you should decide on which one payroll the claim will be made. This change will not affect any payroll that was previously ineligible to claim Employment Allowance. It is the responsibility of the employer to inform BDO how to operate the Employment Allowance through payroll from April 2020 based on the guidelines provided.
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PARENTAL BEREAVEMENT LEAVE
From April 2020, parents who suffer the loss of a child will be entitled to 2 weeks statutory leave. The Parental Bereavement Leave and Pay Regulations, known as “Jack’s Law” will implement a right to at least two weeks’ leave if a working parent loses a child under the age of 18 or suffers a still born from 24 weeks of pregnancy. The new policy for such leave is applicable irrespective of length of service, however Statutory Parental Bereavement Pay
(SPBP) will only come into effect for those with at least 26 weeks service whose average earnings are above the National Insurance Lower Earnings Limit during the relevant period. The weekly statutory payment rate will fall in line with the Statutory Maternity Standard Rate, therefore if an increase is implemented with the onset of a new tax tear for SMP, the same will apply for SPBP. Guidance relating to the employees’ relationship with the child does not
specify that you must be the biological parent of the child, but rather that the employee must be classed as the “Primary Caregiver” for that child in order to qualify for pay and leave. Leave will need to be taken within 56 weeks of the date that the child died and can be taken in either one full block of one or two weeks or in two separate blocks, each consisting of a week.
HOLIDAY PAY REFERENCE PERIOD FOR FLEXIBLEWORKINGHOURS Almost all workers are entitled to 5.6 weeks paid holiday each year. This includes agency workers, workers with irregular hours and workers on zero-hours contracts. Where a worker has fixed hours and is paid a salary, they continue to receive their salary whilst on leave. However, where workers undertake regular overtime, or have variable hours, their holiday pay should be calculated using a reference period. When calculating leave for employees with variable work hours, employers currently utilise a reference period of 12 weeks to calculate the appropriate amount of holiday pay. The average pay from the employee’s last 12 weeks of earnings (discounting weeks where no work was performed, so there were nil earnings) is utilised to determine the pay that the employees receive for their leave. From 6 April 2020, the reference period is being extended. Instead of looking back 12 weeks, employers need to calculate the average over a 52 week period. As unpaid weeks are still excluded, this can require employers to count back over a year into the past. To avoid having to go back indefinitely, a limit of 104 weeks’ worth of data is being introduced; two full years. If after that, there is still not 52 weeks’ worth of data, the employer uses an average of what they have. For new workers who have not worked 52 weeks, employers should utilise what pay data is available right back to their start date. For example, if a worker has been working with their employer for 14 weeks then takes leave, the employer should use the 14 weeks’ worth of data that is available Please note that contractually obliged overtime worked during the reference period must also be included in holiday pay.
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IR35 PRIVATE SECTOR REFORMS POSTPONEDTOAPRIL 2021
As part of the additional measures announced to support businesses and individuals to deal with the economic impacts of Covid-19, it was announced on 18 March that the implementation of the Private Sector IR35 Reforms would be postponed until April 2021. There is currently little detail in support of this announcement, however the key message is that this is a deferral of the new rules not a cancellation. Once more information has been provided by HM Treasury will be able to provide a more comprehensive view on the potential impact this change will have on affected organisations businesses and individuals.
SHARE PLAN REPORTING 2020
HOW BDO CAN HELP Late returns trigger automatic penalties and late certification for tax advantaged share plans can be even more expensive. Our services include: X Identifying share scheme reporting obligations X Assistance with registering plans X Becoming your ERS agents so that we can complete and submit the share plan returns X Assisting with historic reporting X Advice on payroll and tax implications X International tax advice In most cases, we act as authorised agents and are always happy to help with additional company obligations that many agents will not, such as plan registration and ceasing plans. We recommend employers start the annual return process as early as possible. You will need time to identify all reportable events, such as where share options have been exercised or restricted stock units vested for internationally mobile employees.
Do you operate a share plan or have any type of equity transaction involving UK employees or directors? If so you will almost certainly have to submit a return to HMRC by 6 July to report transactions in Employment Related Securities (ERS). This is also known as Share Plan Reporting. The obligation applies to private and listed companies. Where plans are provided by an overseas parent the UK employing company typically reports. HMRC is focusing on the correlation between payroll, corporation tax deductions and share plan reporting. This year there is additional attention relevant to companies using net settlement following updated HMRC guidance. Net settlement is typically a US plan feature, we suggest all UK subsidiaries of US listed companies pay careful attention to the reporting requirements this year. WHEN IS THE SHARE PLAN REPORTING DEADLINE? Transactions should be included in the ERS return which must be submitted by 6 July. PENALTIES Penalties increase over time with £100 penalty for missing the 6 July deadline, £300 is issued on 6 October and a further £300 on 6 January. These are due for each registered plan. Daily penalties be applied from 6 April. The biggest risk for is the additional attention from HMRC.
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CLASS 1A NATIONAL INSURANCE ONTERMINATION AWARDS At present, termination payments including those exceeding the £30,000 tax exemption are payable without generating a National Insurance liability for both the employee and employer. However, from April 2020 HMRC are introducing a Class 1A Employer
Unlike Class 1A National Insurance due in relation to P11Ds which is payable by 19th July each year, Class 1A in relation to Termination payments will be recorded, reported and paid in line with Real Time Information i.e. at time of termination payment. BDO will assess the termination payment at time of process and apply the Class 1A NIC where applicable. Any additional payment will be included in the HMRC liability shown on the client payroll reports.
National Insurance liability on termination payments which exceed the £30,000 exemption. The rate at which Class 1A NI will be due is 13.8% in alignment with the secondary Class 1 National Insurance. There will continue to be no Employee liability on such payments.
HIGHQUALITY CASHFLOW FORECASTS AND MANAGEMENT INFORMATION PACKS DO MATTER.
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Here are five ways they could make a real difference to your business.
Increasing business understanding
Supporting a managed business closure
Internal changes in the business can also affect future performance. Management information packs that identify key performance indicators (KPIs) and highlight when performance falls below critical thresholds enable proactive action to address any weaknesses. For example, a subscription-based business might track whether customer renewals fall below the normal level, or a product manufacturer might focus on an increased level of product returns. KPIs also give you reasons to celebrate when things are on target, such as achieving a stretch goal for recurring revenues in a new market. Generating evidence of sound management processes Generating timely, effective cashflow forecasts doesn’t only help management teams run the business, but also builds up a track record of sound processes being applied. This may be beneficial in 12 or 18 months if the decision is taken to seek new funding or to sell the business. Banks, investors and potential acquirers will all take comfort from the fact that the business has been run using sound information for a period of time.
Not every business will be in growth mode. Some management teams may be looking to close down all or part of a business in response to market changes. If they want to close the business gracefully, on their own terms, then it’s important to think through details such as what assets might be liquidated when and the cost of any redundancies. If temporary funding is required to manage the winding down process, this can be identified and action taken in good time. Cashflow forecasting is a vital component of business planning – and plays a key role in providing management teams with insight into future issues that might arise. Taking advice and having an objective view from experts who can review your forecasts through an investor or funder lens can add real value and contribute to your commercial objectives. To find out more about our cashflow forecasting solutions, please contact Jeremy Hayllar.
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Strengthening internal management alignment
In some businesses, the planning process can be relatively ad hoc with individual managers having differing priorities and making their own assumptions. Establishing a consistent approach to forecasting and making it a ‘business as usual’ process strengthens internal cohesion and clarity, keeping managers focused on the right areas when investing in products and services. Building business resilience We live in uncertain times politically, economically and environmentally. Although it is never possible to foretell the future, management teams can consider possible scenarios and how these might affect the business. For example, what happens if the business starts trading internationally under WTO rules? What happens if corporation tax rises? Forecasts can be adjusted for new assumptions to identify potential cashflow pressure points – a form of risk management that helps to make the business more resilient.
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CORONAVIRUS – IMPACT TO PAYROLL
With the continued impact of the Coronavirus across the UK and measures that are being put in place, it is appreciated that there may be concerns as to the impact to payroll processing during this period and the steps we have put in place to address in the BDO payroll team. Business continuity is key to managing payroll processing as deadlines for processing and payments are fixed, so rest assured this is an area we continuously review and test during the year to ensure our disaster recovery and continuity can withstand any impact. We can confirm that, as we manage payrolls out of four different locations across the UK (Reading, London, Manchester and Glasgow) and all four locations processes and systems are aligned and centralised, we are able to manage all of our clients’ payrolls from these locations, thus ensuring we have the highest level of continuity. We have recently gone through an exercise to ensure our clients files are centralised electronically, so authorised payroll staff can review at all times, even without access to an office, should we have a situation that an office location has to be temporarily closed. In addition, we can confirm that as all of the systems we share with our clients for payroll services (Star, Client Engage Portal and PayDashboard) are cloud based solutions, our clients have the benefit of being able to access their information online and liaise with us outside of their working environment, ensuring there is no impact to them for payroll should their offices be impacted by the virus. We would advise our clients to ensure they have noted their login details for the systems, so they can access outside of their normal working environment. They should also give consideration to the process they wish to undertake should they not have access to other internal systems, which could impact the data collation for payroll, as some companies may decide to pay a flat/basic no change month in this instance. This may not be relevant for companies with hourly paid staff, so a plan should be put in place within their business to manage this situation as we will require instructions from our clients as to how they wish to progress. We’ve set up a resource hub at www.bdo.co.uk/covid-19 that contains the latest guidance and measures to support your business during this time.
DIRECT DEBIT
We are now invoicing our clients on the basis of each time the payroll is completed, which for most of our clients is on a monthly basis. With the technology available through most accounting systems on the market, this should not incur additional administration for our clients. However, we do understand that this may not be the case for all and to assist with any additional administrative work this may cause, we are able to offer a Direct Debit facility. With this method of payment, the invoice issued for the processing of the payroll will be collected at the end of the following month it was issued in. This facility can be used for all BDO invoices issued, or just this from your payroll service if you wish.
FOR MORE INFORMATION:
The proposals contained in this document are made by BDO LLP and are in all respects subject to the negotiation, agreement and signing of a specific contract. This document contains information that is commercially sensitive to BDO LLP, which is being disclosed to you in confidence to facilitate your consideration of whether or not to engage BDO LLP. It is not to be disclosed to any third party without the written consent of BDO LLP, or without consulting BDO LLP if public freedom of information legislation applies and might compel disclosure. Any client names and statistics quoted in this document include clients of BDO LLP and may include clients of the international BDO network of independent member firms. BDO LLP, a UK limited liability partnership registered in England and Wales under number OC305127, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. A list of members’ names is open to inspection at our registered office, 55 Baker Street, London W1U 7EU. BDO LLP is authorised and regulated by the Financial Conduct Authority to conduct investment business. BDO is the brand name of the BDO network and for each of the BDO member firms. BDO Northern Ireland, a partnership formed in and under the laws of Northern Ireland, is licensed to operate within the international BDO network of independent member firms.
MARIA MASON +44 (0)738 445 5344 maria.mason@bdo.co.uk
Copyright © April 2020 BDO LLP. All rights reserved. Published in the UK.
www.bdo.co.uk
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