COMPLIANCE
When is a positive a negative?
Jeni Morris ACIPP, head of the national minimum wage (NMW) team at EY, explains another of the intricacies in ensuring workers are paid at the correct amount
Y ou’d think that reducing a worker’s contractual hours while keeping their pay the same would have a positive effect on an employer’s ability to comply with NMW legislation but, believe it or not, it has the opposite effect! “How can this be?” you cry! Here’s how… The conditions for being a salaried worker include a contractual entitlement to be paid for an annual set basic number of hours and an annual salary for those hours. If the basic annual hours have been met before the end of the year, it’s necessary to ensure the worker is paid at least the minimum wage for the ‘excess hours’ worked, in addition to the basic salary for the pay reference period (which is typically a month for a salaried worker). This seems fair enough, but the way the legislation works could be considered illogical. To bring this to life, a worker earns the NMW rate of £10.42 per hour. The worker’s calculation year is 1 April to 31 March and their contract specifies basic annual hours of 2,040, for which they’re paid £21,256.80 per annum (£1,771.40 per month). The basic hours per month are 170 (2,040 divided by 12). The worker exceeded their annual contracted basic hours on 11 February.
For February and March, the worker remains entitled to receive the £1,771.40 per month, which was the basis of the original contract but in addition, they need to receive at least NMW for any additional hours worked over and above the contractual basic hours. “One thing’s for sure: employers should be checking their salaried workers’ hours and pay to make sure they don’t fall foul of this potential pitfall” In this case, if they worked, say, 70 hours between 11 and 28 February, they must be paid their contractual hours of 156.5 (based on 28 days in February) plus the additional 70 ‘excess’ hours worked. As NMW operates on a pay reference period by pay reference period basis, no ‘credit’ is given for any excess pay over and above NMW in earlier
months – instead, the month in which the annual hours have been exceeded is considered in isolation. Exit logic stage west… What does this mean for employers? There are several solutions, ranging from paying overtime for the excess hours (margin impact) to increasing the contractual basic hours to a higher, more realistic number, therefore removing the problem without having to reduce business margin. However, there are employment law and employee relations implications of implementing any such changes, so care must be taken to consider all potential consequences. One thing’s for sure: employers should be checking their salaried workers’ hours and pay to make sure they don’t fall foul of this potential pitfall. Software can help with that. The 2020 relaxation to the legislative conditions to be treated as a salaried worker were welcomed but, paradoxically, have increased the numbers of workers who are subject to the above risks. So far, HM Revenue and Customs has been relatively quiet on this point, but we expect it to be a focus in the next batch of its reviews. Whatever you do, don’t do nothing! n
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| Professional in Payroll, Pensions and Reward |
Issue 94 | October 2023
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