Living wage adds to payroll problems
The age range of employees in nursery settings varies greatly, and with the introduction of the new National Living Wage at the beginning of April, it adds up to a huge headache for nursery owners and managers.
Add this with higher minimum wage penalties and a focus on the nursery sector by the HMRC, dot2dot have asked Croner to provide a simple guide to the minimum wage, including the different rates and what should and shouldn’t be included.
Background to national living wage increase
The National Minimum Wage (NMW) requires that employers pay workers a minimum hourly rate of pay. Since October 2004, this has covered most workers over the age of 16. From 1 April 2016, employers are required to pay the higher National Living Wage (NLW) to workers aged 25 and over. Workers below the age of 25 must continue to be paid the NMW.
Contractual entitlement to pay
Once you’ve offered someone a job, which is accepted by the employee, you become legally bound to pay the salary or wage specified. Whatever you decide to pay, it must be at least the NMW or NLW, which is currently:
25 and over
21 to 24
18 to 20
Apprentice (those aged 16-18 or 19 and over who are in their first year)
Basic pay is the rate at which you are contracted to pay your employees. This can be stated as an hourly, daily, weekly, monthly or annual sum. It is the payment the employee expects to get irrespective of bonus, overtime or commission rates.
If you pay overtime, this fact and the rate at which it is paid should be set out clearly in each employee’s written terms and conditions.
What should and shouldn’t be included?
The regulations are specific about what can be included or deducted from pay counting towards the total in a pay reference period. Payments that count towards the NMW include:
· Income tax and employee’s National Insurance contributions
· Deduction or payment of penalties, loans, wage advances
· Worker’s pension contribution
Payments that don’t count towards the NMW include:
· advance of wages
· pension payment
· redundancy payment
It’s really important to keep records of what your employees are paid, so that you can show, if investigated by HMRC, that you are paying workers at least the NMW/NLW. If you have apprentices, you will also need to keep a copy of the agreement for a worker to receive accredited training.
Records must be kept for three years, starting with the day upon which the pay reference period immediately following that to which they relate ends.
HMRC are responsible for enforcing payment of the NMW and, from 1 April 2016, the NLW. Investigating officers can remove NMW records from an employer’s premises for a reasonable period to copy them. They can also remove a complete record, rather than just that portion relating to the NMW. The powers that apply in relation to the NMW are extended to the NLW from 1 April 2016. Automatic penalties apply in cases of underpayment; these range from £100 to £20,000. The more serious NMW offences can be tried in the Crown Court and liable to a potentially unlimited fine.
As a client of dot2dot you have access to Croner’s HR and pay experts through the Business Support Helpline. If you have any questions on pay, the National Living Wage, or National Minimum Wage, then please do give them a call.