Make a mistake in calculating a staff salary and you could be named and shamed
Every few months HMRC publishes a list of those employers it finds underpaying employees the National Minimum Wage (NMW). The most recent list, published in February, was the largest ever. It named 350 employers who collectively owed almost £1 million to employees. On that list was a pharmacy in Coventry, which owed £110.67 to a member of staff, and on the previous list, published in August 2016, was a pharmacy in London, E13, which owed £312.00 to one of its members of staff.
The National Minimum Wage is the minimum pay per hour almost all workers are entitled to. The National Living Wage is higher, and workers get this if they are over 25. The rates for these are currently:
£7.50 an hour for anyone aged 25 or over
£7.05 an hour for anyone aged 21–24
£5.60 an hour for anyone aged 18–20
£4.05 an hour for anyone aged 16–17, and
£3.50 an hour for an apprentice (under age 19 or in first year of their apprenticeship).
How can you make sure you are paying the correct rate? Lee Ashwood, a senior associate in the employment department of Eversheds Sutherland, says “to most the calculation would be total pay divided by the number of hours worked”. But, unfortunately, it is not always that simple, he warns.
A first step, he says, is to note that the calculation must be based on the relevant ‘pay reference period’. But not all pay in the reference period counts.
Mr Ashwood goes into detail: “A pay reference period is the period for which an employee receives pay (assuming they are paid regularly and at least once a month). For example, if someone is paid weekly, their pay reference period is one week. Employers then need to look at the total employees were paid before deductions for income tax and National Insurance contributions in the period in question, and then remove any payments and deductions that do not count.”
Basic salary, bonus, commission and other incentive payments based on performance all count towards NMW. But there are a number of elements of pay that do not count, including pension payments or benefits in kind such as private medical insurance or other benefits; any extra pay for overtime or shift work. Only the basic rate of pay is taken into consideration for overtime worked; expenses, and any allowances or payments that are not attributable to their performance and is not part of their basic salary, for example an additional element of pay that is for London-weighting or an on-call allowance.
Establishing how many hours the employee worked is not simple either. Ashwood says employers need to consider the time spent actually working, but not any rest or meal breaks during which the employee is not required to work.
“It’s also important to note standby or on-call time, but only if they are required to be available at or near their place of work should they be needed; any travel time for business during normal working hours, but not commuting to and from work; and time the employee spends receiving training, whether at work or anywhere else during normal working hours.”
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