Voluntary overtime and holiday pay calculations

Employment law states that holiday pay should be equivalent to a normal week’s pay so as not to place employees at a financial detriment when taking a period of annual leave. For employees working fixed hours each week, this is a straightforward calculation. However, calculations are more complicated when employees work varying hours. In these situations, employers must calculate the overall average working time in the 12 weeks immediately prior to taking annual leave. If there is a week during this period where no work occurred, then the calculation must take into account an earlier week where work did take place. A recent landmark ruling means that now, voluntary overtime joins compulsory and non-guaranteed overtime to be included in holiday pay calculations when it is ‘sufficiently regular and settled’. Therefore it is recommended that employers review existing methods of recording overtime shifts and ensure payroll include these in calculations going forward. Employees who receive result-based commission are also entitled to have this include in their holiday pay calculations.

Compulsory overtime, which employers are contractually obliged to offer and employees are obliged to accept, has long been included in these calculations. The requirement to include non-guaranteed overtime, where employers have no obligation to offer, but cannot be refused by employees when it is, came in in 2014

It is important to note that aside from compulsory overtime, all other forms of overtime will only apply to the 4 weeks of annual leave provided by the EU Working Time Directive. This is not required for the additional 1.6 weeks that is provided as a minimum under UK law.

Universal credits affected by Pay Dates

When Universal Credits were introduced, replacing means-tested social security benefits and tax credits, we were told it would streamline the benefits system, tackle poverty amongst low income families, and reduce the scope for error and fraud. This benefit requires the use of employment earnings obtained from employers in real time via the RTI submissions sent to HMRC by the employers each pay period. Receiving information through RTI means a claimants’ universal credit can be amended based on changes to earnings rather than the claimant providing details of their income. However, we are finding that many employees’ universal credits can be affected by different pay dates submitted in the RTI submissions.

In a recent judicial review case heard at High Court brought on behalf of four single mothers, it was ruled that the DWP had been wrongly interpreting the UC regulations. The case challenged the rigid, automated assessment system in UC which meant the mothers lost hundreds of pounds each year and were subject to large variations in the UC awards because of the pay dates on which their paydays and UC ‘assessment periods’ happened to fall. The mothers all had monthly paydays that clashed with the dates of their monthly UC assessment periods, with the result that if they were paid early some months, because for example their pay day fell on a weekend or bank holiday, they were treated as receiving two monthly wages in one assessment period, which in turn dramatically reduced their UC award. This is a problem which has affected many working claimants. The rulings from this hearing means the DWP should adjust its calculation of UC awards when it is clear amounts received in an assessment period do not, in fact, reflect the earned income payable in respect of that period. In other words, wages are to be allocated to the month in which they were earned rather than to the assessment period in which they were received.

HMRC has recently issued guidance about the dates employers should report in FPS returns when the regular payment day falls on a non-banking day. With a nod to the impact of payroll on UC, HMRC state it is essential to use the correct payment date as it could impact on your employees’ financial situation, including benefits such as Universal Credit. Acknowledging the occasions when employees are paid on a different day to that agreed, such as when the regular pay date falls on a Saturday, Sunday or bank holiday, HMRC advises that a payment reporting easement applies. When payments are paid early for this reason then the date entered in the FPS submission should be the regular payment date.

Calculating Holiday Pay

Summer season is here and especially during school holidays, many workers are looking to take time off work, so employers need to check their workers are getting the holiday they are owed. The definition of a worker according to the government is a person that has a contract or other arrangement to do work or services personally for a reward. That means full-time, part-time, casual and agency workers. When calculating holiday pay, employers must consider whether employees are frequently required to work overtime and if this is being calculated in their holiday pay.

All workers, apart from those that are self-employed are entitled to 5.6 weeks’ paid holiday a year.
For full-time workers that is 28 days a year (4 weeks for a 5 day week, including bank holidays) divided by 12 months = 2.33 days holiday entitlement per month.
For part-time workers that is still the equivalent of 28 days divided by 5 days times the number of days worked a week.

For example if you work a 3 day week.

28 days divided by 5 days multiplied by 3 days = 16.8 days holiday per year.

Employment Law Changes from April 2019

There are quite a few employment law changes from April 2019 that will affect your payroll.

New legislation from 6th April requires all employers to provide a payslip to all workers, and to show hours on payslips where their pay varies by the amount of time worked. Many employers will need to review and potentially change the way they issue payslips to include those who are recognised as ‘workers’ and will also be obliged to include the total number of hours worked.

The minimum contributions for auto-enrolment pension schemes increase for both employees and employers in April 2019. Employers must contribute a minimum of 3% of an eligible worker’s pre-tax salary, with the employee contributing 5% themselves.

The budget changes to rates from 1st April:
The National Living wage for over 25 year olds increases to £8.21 per hour from £7.83.
The National Minimum Wage for 21 to 24 year olds increases to £7.70 per hour from £7.38.
The National Minimum Wage for 18 to 20 year olds increases to £6.15 per hour from £5.90.
The National Minimum Wage for under 18 year olds increases to £4.35 per hour from £4.20.

The lower earnings threshold also increases in April 2019:
The weekly earnings threshold for National Insurance and Statutory payments increases from £116 to £118 per week.
Statutory Sick pay increases from £92.05 to £94.25 per week.
Statutory Maternity/Paternity/Adoption Pay increases from £145.18 to £148.68 per week.

Private sector organisations with 250 or more employees must publish their gender gap figures on 4th April 2019.

A new Postgraduate loan (PGL) deduction starts in April 2019. The threshold is £21,000 and the deduction rate is 6%. The PGL will run concurrently with plan 1 and plan 2 repayments if the employee has these in place.

New from April 2019 is the ability to submit revised full payment submissions (FPS) to HMRC beyond 19th April 2019 for the 2018-19 tax year. Previously you had to process an Earlier Year Update (EYU). From April 2020 the EYU will no longer be a valid submission and HMRC’s Basic tools software will be updated to allow customers to submit a FPS return for the year ending 5th April 2020 and onwards, to report any amendments.

Pension Re-enrolment Duties

Are your pension re-enrolment duties coming up soon?

More than 1,200,00 employers have now successfully met their automatic enrolment duties and put nearly 10,000,000 staff into a workplace pension. However, automatic enrolment has ongoing tasks that must be completed to ensure employers continue to comply with the law, and staff continue to receive the pensions to which they are entitled.

Every three years, employers must put certain staff back into a pension scheme. This is called ‘re-enrolment’. Your pension re-enrolment duties must be carried out approximately three years after your automatic staging date. Employers must complete re-enrolment which means identifying staff that may need to be re-enrolled into the pension scheme. This may include staff that have previously opted-out of the pension. Even if you have no staff to re-enrol, you will need to complete a re-declaration of compliance to tell The Pensions Regulator that you have met your duties. Many employers are now coming up to the 3 year anniversary now.

Your re-enrolment duties:

* Choose your re-enrolment date from within a six-month window, which starts three months before the third anniversary of your automatic enrolment staging date and ends three months after it.

* Assess your staff. On your chosen re-enrolment date, you will need to assess certain staff to work out if you need to put them back into your pension scheme. Do this on your re-enrolment date.

* Write to staff that you have re-enrolled. Do this within 6 weeks of your re-enrolment date.

* Complete your re-declaration of compliance. Do this within 5 months of the third anniversary of your staging date.

Most employers are aware and understand that ongoing duties, but a small minority who fail to meet ongoing duties will risk financial penalties.

Click here for further guidance.