This April there are a number of legal changes relating to pay, including new requirements relating to the provision of pay slips, as well as changes to statutory rates, such as the National Minimum Wage, which employers need to be aware of. Therefore, in this month’s FAQs, we provide information of these changes and tackle some of the more complex questions we get asked in relation to paying staff and making deductions from wages.
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These FAQ’s were curated by Nicole Squires, MA, Chartered MCIPD, an Executive Consultant at People Based Solutions. People Based Solutions is an HR support company that specialises in supporting small and medium sized businesses meet all of their HR commitments. If you want to know how People Based solutions can help you meet your HR and Employment Law obligations click here for your free HR Health Check. Alternatively, you can call us on 01925 425 857, send an e-mail to enquries@peoplebasedsolutions.co.uk or Click Here to visit our website.
Itemise Pay Statements
The pay statement should include:
• the gross amount of wages or salary
• the amounts of any variable or fixed deductions made from the gross amount and the purposes for which the deductions are made (subject to the exception below)
• the net amount of wages or salary to be paid
• the amount and method of part-payments where wages or salary are paid in different ways
• from 6 April 2019, there will be a requirement to include the number of hours where pay varies depending on time worked.
A failure to provide the pay statement, or where a statement is provided which does not contain the required information, could lead to the employee making a claim to an employment tribunal. Additionally, an employee may receive compensation whereby they have failed to be provided with the pay statement and the organisation has carried out an unnotified deduction from their wages within the previous 13 weeks.
There is an exception under S. 9 of the ERA where the amount of each fixed deduction is not required to be included within each written pay statement. This exception applies where the employee has been provided with a written standing statement of fixed deductions, either before or on the date of the pay statement.
The written standing statement of fixed deductions has to meet the following requirements:
• it specifies the amount and purpose of each deduction and the intervals at which the deductions are made and
• it is in effect at the date the pay statement is given.
A standing statement of fixed deductions will only be effective for a period of twelve months. Where the deductions are set to be carried out for over twelve months, the employer will be required to reissue the statement annually.
Variable Hours
In these circumstances, the organisation will have to include the number of hours paid at the varied rate. As an example, for a worker on a monthly salary who carries out differing amounts of overtime each month for which they are paid an hourly rate, the organisation will only have to state the number of hours of overtime worked (as this is the amount of time worked which varies their pay).
Recording the hourly figure can be done in one of two ways, either:
• as one total of all the hours which vary pay, or
• as separate figures for each variation of pay.
As an example, a worker who carries out six hours of overtime, four hours of shift work at pay rate A and five hours of shift work at pay rate B, can either have 15 hours recorded on their payslip (as one total of all the hours which vary pay) or three separate total figures for each varied rate (eg 6 hours overtime, 4 hours rate A and 5 hours rate B).
Deductions From Pay For Lateness
Situations where deductions may be considered lawful include:
• recovery of an earlier overpayment of wages or expenses;
• as a result of legally backed disciplinary proceedings, such as police disciplinary proceedings;
• as a consequence of participating in industrial action;
• fulfilment of a court order or tribunal decision (but prior employee agreement is necessary);
• payments to a third party (e.g. a trade union) that the employee agrees to have deducted through payroll.
In this case, unless the employee’s contract of employment states that deductions will be made from their salary for lateness, or they have already agreed to this in writing, a deduction cannot be made without their permission. An employer can seek agreement from an employee to amend their employment contract to enable deductions to be made. However, even if consent is granted, there can be no deduction (or payment) from wages in respect of any lateness that occurred before the agreement was reached.
Also, a deduction can’t normally reduce an employee’s pay below the National Minimum Wage, even if they agree to it. However, there are exceptions, which we will look at below.
Deductions From Pay As A Disciplinary Sanction
An alternative would be to give a final written warning, if your disciplinary procedure allows for this. Many disciplinary procedures allow the option of giving a final written warning instead of dismissing for gross misconduct if there are good reasons for doing so. However, it is important to ensure that you can demonstrate that you have treated all employees consistently. If, for example, other employees have faced dismissal under similar circumstances, without being given the choice of a deduction from their salary, it may not be considered equitable for this employee to be treated differently.
In order for an employer to argue that an implied term has developed, there must be a clear structure to the decision-making process regarding whether or not to make a deduction and this must have been applied consistently across the organisation over a significant period of time. If decisions have been made on an ad hoc basis, however, then an implied term will not have developed and it would be unlawful to make the deduction.
You may wish, instead, to utilize your organisation’s disciplinary procedure to deal with this matter, giving a disciplinary warning to the driver concerned. If the poor performance continues you could issue further warnings, and if there is no improvement over a specified time period, this could then result in their dismissal.
Recovering Overpayments
An overpayment should be recoverable unless the employee genuinely believes they are entitled to the money, they have spent the money believing it to be theirs, and the overpayment was not their fault. Employees who have been accidentally overpaid should be treated fairly. The employer should explain what has happened, and if the amount is relatively small, they may agree that the equivalent amount can simply be deducted from their next salary payment. If the overpayment is significant and the employee has come to rely on receiving the higher monthly amount, the employer may still be able to agree a repayment method with them. The employee may not have realised they were being overpaid (especially if it was by a relatively small amount each month), making it even more important for them to be treated fairly. It would be unfair, for example, for a very large amount to be deducted from a single month’s pay. Instead, the employer should agree to a reasonable monthly repayment plan that is affordable for the employee.
Ultimately, the longer the higher payments have been made, the more chance the employee has of successfully refuting the employer’s demand for repayment. A cost-benefit approach is, therefore, advisable and, depending on the amount involved, it may be less expensive, less time-consuming and less reputationally damaging to simply write-off the overpayment.
Salary Sacrifice
One example of such a deduction is where an employee participates in a salary sacrifice scheme, so that they give up some of their salary in return for non-cash benefits, such as pension contributions or childcare vouchers. In such circumstances, the employee’s gross pay should be calculated for NMW purposes by taking off the amount being sacrificed through the scheme. Therefore, the amount deducted cannot reduce the employee’s earnings below the NMW. Employers should, therefore, review their current salary sacrifice arrangements to ensure that after deductions are made for the purpose of the scheme, their employees receive pay at least equivalent to the current NMW.
Non-compliance can result in an enforcement notice requiring the employer to pay the difference between what was actually paid and what the worker should have received under the NMW legislation. Further non-compliance could result in the issue of a penalty notice and financial penalties.
Sleep-in Shifts
The Court determined that previous cases on this issue had been wrongly decided, including those which held that NMW was payable for the time spent asleep when the worker could not leave the workplace because they would face disciplinary action, or if there was a statutory or contractual requirement for a certain number of workers to be present at one time.
Although this judgement may come as a relief to the care sector, who had been faced with huge arrears of pay for this type of shift, this judgement may still be appealed to the Supreme Court. For now, employers who had begun to pay workers NMW for all hours of a sleep-in shift in response to previous case law may wish to remove this practice but keep a vigilant eye on further developments. If the increased pay has already been implemented via a formal change to terms and conditions, another such formal change will have to be initiated by following a fair procedure to reduce pay.
Statutory Sick Pay
There are, however, some specified exceptions where SSP does not have to be paid:
• if the employee’s Period of Incapacity to Work (PIW) benefit is associated with and directly linked to other Social Security benefits such as incapacity benefit.
• if the employee has already received or is owed 28 weeks SSP encompassing a three year period, all derived from the same employer.
• if the employee’s average weekly earnings during a period of time (calculated over the last eight weeks up to the most recent payday) falls below the National Insurance lower earnings limit.
• if there is a disqualifying period because the employee is pregnant
• if the employee is not working or away from work due to a labour union disagreement with management.
• if the employee is in the custody of the police or other government authorities.
• if the employee is working outside of the UK and the employer is not liable to pay Class 1 National Insurance contributions.
• if the employee is new and has yet to begin working
Therefore, part-time employees who earn the equivalent or more than the National Minimum Wage (NMW) qualify for SSP at the normal weekly amount. The full SSP rate (not a pro-rated amount) should be paid to these part-timers. In addition, temps and casual workers will also be entitled to SSP, assuming they meet the aforementioned criteria.
SSP is only payable if the employee has been ill for four consecutive days (these do not have to be working days). This is known as a ‘period of incapacity for work.’ Employees are entitled to up to 28 weeks’ SSP in any period of incapacity for work, or in a series of any linked periods (provided each period is not more than 56 calendar days after the preceding period).
SSP is only payable for the days the employee is usually required to work (known as qualifying days). These are usually set out in the employee’s contract of employment. For example, an employee working Monday to Wednesday will usually have those three days as their qualifying days.
If there is no agreement about this (perhaps because the work is flexible and allocated each week), the qualifying days will be those days which the employer and the employee agree are working days for that week.
If there are no agreed working days in the week (as might happen if someone is engaged on a zero-hours contract), Wednesday is deemed a qualifying day. This means that an employee can still receive SSP for a week in which they wouldn’t normally work.
For details of current and future NMW levels and SSP rates click here
Deductions From Pay and the National Minimum Wage
However, there are a number of exceptions to this:
-If it is for something they’ve done and their contract says they’re liable for it: e.g. damage to company property due to their neglect.
-If it is the repayment of a loan, advance or an accidental overpayment of wages.
-If it is related to buying shares or share options in the business.
-If it is in respect of accommodation provided by the employer.
-If it is a payment for their own use, eg union subscriptions or pension contributions.
Therefore, as loan repayments are exempt from NMW calculations, the employee is not entitled to insist on a longer repayment period.
However, as part of their duty of care to their staff, employers should be aware of the impact that financial hardship can have on individuals’ and their family’s lives, their mental health, as well as on the employee’s ability to be a productive member of the workforce. It may, therefore, be prudent for the employer to speak to the employee about their situation and, if it is established that they are struggling financially, to agree a new repayment plan that is affordable for them. Employers may also consider offering other forms of support to employees, such as access to debt advice services and/or individual counselling.
Deductions From Pay to Cover Shortfalls
So, if there’s a shortfall of £50 and the employer wishes to deduct this from the employee, who is paid £250 gross per week, the employer can take 10% of their gross earnings, which is £25. The employer can only take £25 one week and can then make another deduction from the employee’s next pay cheque for £25. If the employee leaves their job, the employer can take the full amount owed from their final pay
The rules regarding payments received by the employer from a retail worker in connection with a shortage or deficiency are as follows:
• The employer must notify the worker in writing of the total amount to be deducted prior to deducting the first instalment.
• The employer must make a written demand for payment on one of the worker’s pay days but not before the worker receives notice of the full amount owed.
• The demand must not be for more than 10% of gross wages on that pay day.
• The payment plus any deductions relating to a shortage or deficiency must not amount to more than 10% of gross wages on that pay day
Recovering Training Fees
The amount recoverable under the training agreement should reasonably reflect the losses incurred by the employer in paying the training fees and the lack of benefit they have derived from the training provision. Therefore, the amount required to be repaid should be reduced on a sliding scale basis the longer the employee remains with the employer. To make recovery easier, the employer should include a provision within the training agreement for the deduction of the monies owed from the employee’s salary.
Overtime and Holiday Pay
The Court of Justice of the European Union in Williams and others v British Airways plc [2011] said that workers who take statutory holiday are entitled to receive their ‘normal remuneration’, defined as base salary and any remuneration that is ‘intrinsically linked to the performance of the tasks that they are required to carry out under their contract of employment’ (such as flying time for pilots). In another case, Lock v British Gas) Mr Lock’s argument was that if he took holidays, he was unable to follow up leads and consequently his commission was lower than if he had been in work for the full period. In the case of Neal v Freightliner Ltd [2013] an employee argued that his voluntary overtime payments should be included when calculating his holiday pay. The Employment Judge concluded that the employee was doing tasks that he was required to do under his contract during overtime. Even though he had volunteered to work the overtime, it could not be concluded that the work he was doing was not ‘intrinsically linked’ to his usual tasks.
Such cases have, therefore, established that regular commission payments and allowances “intrinsically linked” to performing a role, should be included when calculating holiday pay. In addition, ‘non-guaranteed’ overtime, which employees are regularly required to work, should be included in the calculation of holiday pay where it is part of “normal remuneration”.
However, it should be noted that these arrangements for the calculation of holiday pay apply to the four weeks’ entitlement to paid leave under the European directive, not to the additional 1.6 days’ paid leave workers are entitled to under the Working Time Regulations.
Holiday Pay and Flexible Hours
Following a consultation on this matter, the government’s ‘Good Work Plan’ released in December 2018 has confirmed that legislation will be introduced to increase the holiday pay calculation reference period. From 6 April 2020, the reference period will be extended from 12 weeks to 52 weeks, to allow a fairer approach to holiday pay when workers carry out flexible working hours.
