Employer advice ahead of major change for payroll

Minimum wage: know the rules, not just the rates.
Forthcoming changes highlight the need for employers to deal confidently with the underlying rules. Notably, from 1 April 2024:

• the National Living Wage (NLW) becomes £11.44 per hour

• those aged 21+ qualify for NLW rather than the lower, National Minimum Wage (NMW).

We use the term ‘minimum wage’ to refer to both the NLW and NMW.

Minimum wage is complex, and a slip-up in the underlying calculations can put employers at risk. The danger is not just confined to sectors like retail, hospitality, and cleaning and maintenance, where historically many workers have been paid at or below minimum wage. Because there is so little margin for error, employer risk also arises where payment to workers sits at, or just above, minimum wage. Something like payment into a salary sacrifice scheme can easily the tip the scales, creating an underpayment for a previously compliant employer.

Steps to compliance:

• Categorise workers according to the type of work they There are four types of work for minimum wage: salaried hours work; time work; output work; and unmeasured work. For each one, rules on what counts as working time — and therefore the hours to be paid at minimum wage — apply differently.
• Identify the particular period for which the worker is paid (the pay reference period).
• Work out the average hourly rate of pay for the pay reference period:
  1. Calculate the pay for period, with regard to minimum wage rules on what counts as pay, minus any deductions.
  2. Calculate hours worked in the period, with regard to minimum wage rules on what counts as hours of work.
  3. Divide the pay for the period by the number of hours worked in the period, to give the average hourly rate for the
• Check which minimum wage rate band the worker falls
• Check average hourly rate of pay for period is not less than the relevant minimum wage If less, pay should be topped up so that at least minimum wage is paid.

HMRC regularly names and shames employers who make mistakes resulting in underpayment. The most common problems occur when paying apprentices; making deductions from pay which take wages below minimum wage, and not paying for working time correctly.

Compliance with the rules is far from straightforward, and we have only been able to provide an overview here.

Please contact Ellacotts if you wish to discuss this article or if you have a query, please contact your usual contact at Ellacotts. Contact us on 01295 250401 or email solutions@ellacotts.co.uk. You can also contact us here with your query.

Information for readers: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.