National minimum wage compliance may have fallen down the pecking order in 2020 due to COVID-19. But HMRC is still enforcing the rules, and there were changes you need to be aware of. Are you up to speed?

Furlough, a reminder

When furloughed, the national minimum wage (NMW) is only payable for worked hours, so while an employee is either fully or flexibly furloughed, the NMW does not apply. The only caveat is that those hours must be remunerated at the relevant NMW rate if your employees have been doing any training. You can still take all the furlough pay and divide it by the training hours, which will almost certainly exceed the relevant national minimum wage.

Salary sacrifice

In February last year, the Department for Business, Energy, and Industrial Strategy adopted a new approach to salary sacrifice, which HMRC then enforced. While salary sacrifice and voluntary deductions for the employer’s benefit continue to reduce national minimum wage, no fines and no naming and shaming will now occur when these offences are discovered – though, employers will now be asked to ensure they change their processes to stop non-compliance in the future.

Pay reduction

In many cases, employers are yet to implement salary sacrifice in the right way. Rather than a reduction in contractual pay, employers are operating a voluntary deduction. While both situations can lead to a national minimum wage breach, if HMRC finds that a salary sacrifice has not been correctly implemented while investigating, it may lead to a further PAYE compliance investigation.

The regulations introduced in April 2020

As of 6th April 2020, the National Minimum Wage Regulations include two extra pay frequencies for a salaried worker, sorting out an issue that existed in previous years that meant a worker couldn’t be considered a salaried worker for NMW purposes unless they are paid monthly or weekly. The new rules introduced meant they could now also be treated as a salaried worker if they are paid four-weekly or fortnightly. As a salaried worker allows their annual salary to be paid in equal instalments, regardless of the actual hours worked in the pay period.

Shift allowances

Previously only those receiving basic pay and bonuses could be classed as “salaried.” However, a further change made in April was to allow those who receive premium rates at any time in the year, such as shift allowances or overtime, to now be classed as salaried too. 

Period of transition

Although the definition of who can be classed as salaried has been widened, unless an employer acts upon it now, the new definition does not come into effect until the first “worker calculation year” begins after 6th April 2022. 

A worker calculation year is used to check that an employee hasn’t worked more than their annual hours that their contract specifies. It’s based on the start date of their employment, so an employee who began work on 1st March has a worker calculation year of 1st March to 28/29 February. In this example, the employer would not move the employee to be legally treated as salaried until 1st March 2023. To get around this long transitional period, an employer should take proactive action in recategorising a staff member.

They must:

• write to each worker to explain why the calculation year is changing
• provide the date the new year takes effect, which must be three months from the date of the notice (and three months from the employee’s start date); and
• that this will take effect unless the worker objects in writing; and
• ensure no change of hours or deduction from pay occurs as a result of the change.

To discuss any of the points raised within this blog post, you can call Unique Payroll on 01473 461 028, email contactus@uniquepayroll.co.uk or visit https://uniquepayroll.co.uk/.