Calculating Minimum Wage if paid annual salary

New National Minimum Wage and National Living Wage rates will come into effect on 1 April 2021. These changes will see the National Living Wage increase by 19p to an hourly rate of £8.91 and the National Minimum Wage will increase to £8.36 (a rise of 16p). There are also increases in the other minimum wage thresholds. 

There are special rules to check that salaried workers who receive an annual salary are being paid at least the equivalent of the minimum wage. 

HMRC’s guidance states that someone is undertaking salaried hours work if all of the following apply:

  • their contract states how many hours they must work in return for their salary (their basic hours)
  • they’re paid in equal, regular instalments through the year, for example monthly or every 4 weeks
  • there is no more than a month between each payment
  • they do not get paid more than once a week

Once you know how many basic hours are relevant you can calculate if the employees are being paid at least the minimum wage to which they are entitled. 

There are penalties for employers that are found to have underpaid their workers and, in some cases, there may be criminal prosecutions.

Reminder of year end payroll chores

It is not long until the current 2020-21 tax year comes to an end and there are a number of year end payroll chores that must be completed. This includes sending a final PAYE submission for the tax year. The last Full Payment Submission (FPS) needs to be submitted no later than the last payday for your employees of the 2020-21 tax year.

It is also important that employers remember to provide employees with a copy of their P60 form by 31 May 2021. A P60 must be given to all employees that are on the payroll on the last day of the tax year – 5 April 2021. The P60 is a statement issued to employees after the end of each tax year that shows the amount of tax they have paid on their salary. Employers can provide the P60 form on paper or electronically. Employees should ensure they keep their P60s in a safe place as it is an important record of the amount of tax paid.

In addition, a P60 is required in order that an employee can prove how much tax they have paid on their salary, for example:

  • to claim back overpaid tax;
  • to apply for tax credits;
  • as proof of your income if you apply for a loan or a mortgage.

Employees who have left their employment during the tax year do not receive a P60 from their employer, as the same information will be on their P45.

The deadline for reporting any Class 1A National Insurance contributions and submitting P11D and P11FD(b) forms to HMRC for the tax year ending 5 April 2021 is 6 July 2021.

Deciding length of CJRS claim period

The Coronavirus Job Retention Scheme (CJRS) commonly known as the furlough scheme was due to come to an end on 31 October 2020 but has now been extended until 31 March 2021. Effective from 1 November 2020, employees will receive up to 80% of their salary for hours not worked. There will be a review date of the CJRS in January 2021, which may see employers taking on an increased financial contribution if the economic and health outlook of the country show signs of improvement. 

It is important that employers are aware of the rules for deciding the length of any claim period. The claim period is made up of the days that you are claiming a grant. The start date of your first claim period is the date your first employee was furloughed.

Claim periods starting on or after 1 July 2020 must start and end within the same calendar month. All claim periods starting on or after 1 July 2020 must last at least seven days. You can make a claim for less than seven days if you are claiming for the first few days or the last few days in a month.  However, you can only claim for a period of fewer than seven days if the claim period includes either the first or last day of the calendar month, and you have already claimed for the same employee for the period immediately before.

Employers should ensure they include all of the employees they want to furlough for each claim period, as they will not be able to make another claim for the same period or one that overlaps the claim period.

Employers can claim before, during or after they process payroll as long as the claim is submitted by the relevant claim deadline. Claims from 1 November 2020 must generally be submitted within 14 calendar days following the end of the previous calendar month. Payments will be made within six working days after submission of a claim.

Benefit conditions – Trivial benefits

The trivial benefits in kind (BiK) exemption applies to small non-cash benefits like a bottle of wine or a bouquet of flowers given to employees or any other benefit in kind classed as 'trivial' that falls within the exemption.

Although the benefit is defined as ‘trivial’, employers should remember that this offers a great opportunity to give small rewards and incentives to employees. The main caveat being that the gifts are not provided as a reward for services performed or as part of the employees’ duties. However, gifts to employees on milestone events such as the birth of a child or a marriage or other gestures of goodwill would usually qualify.

The employer also benefits as the trivial benefits do not have to be included on PAYE settlement agreements or disclosed on P11D forms. There is also a matching exemption from Class 1 National Insurance contributions.

The tax exemption applies to trivial BiKs where the BiK:

  • is not cash or a cash-voucher; and
  • costs £50 or less; and
  • is not provided as part of a salary sacrifice or other contractual arrangement; and
  • is not provided in recognition of services performed by the employee as part of their employment, or in anticipation of such services.

The rules also allow directors or other office-holders of close companies and their families to benefit from an annual cap of £300. The £50 limit remains for each gift but could allow for up to £300 of non-cash benefits to be withdrawn per person per year.  The £300 cap doesn’t apply to employees. If the £50 limit is exceeded for any gift, the value of the benefit will be taxable.

Sick-pay if self-isolating

If you are an employee, you must tell your employer as soon as possible if you are showing signs of Coronavirus or someone you live with has symptoms of the disease.

Your employer will be able to inform you if you are covered by their sick leave policy. If you are, you may be asked to furnish them with an isolation note that proves you cannot work due to Coronavirus symptoms. You can obtain an isolation note from NHS 111 online in England, NHS inform in Scotland, NHS Direct in Wales and from the Public Health Agency in Northern Ireland.

If you do not qualify for sick pay from your employer, you may be eligible for Statutory Sick Pay (SSP) for every day you are in isolation. You must self-isolate for at least 4 days to be eligible.

You may be eligible for Universal Credit if you cannot get Statutory Sick Pay, for example if you are self-employed or earning below the Lower Earnings Limit of £118 per week. You can request an advance payment of Universal Credit if you do not have enough money to live on whilst waiting for your payment.

You might also be able to:

  • apply online for the New Style Jobseeker’s Allowance 
  • apply for New Style Employment and Support Allowance, if you have a disability or health condition that affects how much you can work.

Parents returning to work after maternity/paternity leave

The Coronavirus Job Retention Scheme (CJRS) also known as the furlough scheme has been extended until 31 October 2020. There are a number of important changes to the way the scheme works starting from 1 July 2020, when employers can bring back furloughed employees to work part-time, for any amount of time and any shift pattern. One of the specified changes is that the final date employers could furlough staff for the first time was 10 June 2020.

However, employees who return to work from maternity and paternity leave after 10 June had not been considered. The Chancellor, Rishi Sunak, has now confirmed that affected employees could still be furloughed in future as long as their employer has already furloughed employees under the CJRS.

This means that in most cases parents on statutory maternity and paternity leave, who return to work in the coming months after a long period of absence, will be permitted to be furloughed. This change also applies to those on adoption leave, shared parental leave and parental bereavement leave.

Chancellor of the Exchequer Rt Hon Rishi Sunak MP said:

'When I announced these changes to the furlough scheme last month, I was clear that we wanted to do this in a fair way, that supports people back to work as the country begins to re-open following Coronavirus.

But for parents returning from leave, their circumstances has meant that they are still in need of support, and I’m pleased that they will be able to receive the financial assistance they and their family will need.'

Financial support if you have Coronavirus symptoms

Guidance is published by the Department for Work and Pensions about support measures in place if you are employed and have Coronavirus symptoms. 

You must tell your employer as soon as possible if you are showing signs of Coronavirus. Your employer will be able to inform you if you are covered by their sick leave policy. If you are, you may be asked to furnish them with an isolation note that proves you cannot work due to Coronavirus symptoms. You can get an isolation note from NHS 111 online in England, NHS inform in Scotland, NHS Direct in Wales and from the Public Health Agency in Northern Ireland.

If you cannot get sick pay from your employer, you may be eligible for Statutory Sick Pay (SSP) for every day you are in isolation. You must self isolate for at least 4 days to be eligible.

If someone in your household is showing symptoms of Coronavirus then you must stay at home. If you are able to work from home then you should do so. If this is not possible then you may be eligible for sick leave, special leave or SSP.

You may be eligible for Universal Credit if you cannot get Statutory Sick Pay and you can ask for an advance payment if you do not have enough money to live on whilst waiting for your payment. 

Changes to holiday pay arrangements

Some important changes to holiday pay arrangements came into effect from 6 April 2020. This has seen the reference period for calculating holiday pay increase from 12 to 52 weeks. This change affects workers with no fixed or regular hours. It means that their holiday pay will now be based on the average pay they received over the previous 52 (not 12) weeks. The 52 week reference period will continue to function in the same way as the previous 12 week period.

Almost all full-time workers in the UK are legally entitled to 5.6 weeks' (or 28 days) paid holiday per year. This is known as their statutory leave entitlement or annual leave. Legally, employers can include bank holidays in this total although not all employers do this. Employers are also free to provide additional non statutory holiday entitlement.

An employee’s actual statutory entitlement depends on how many days they work per week but all employees including part-time, agency or casual workers are entitled to holiday. There is no statutory entitlement to holidays for the self-employed and there are special rules for those in the armed forces, police and civil protection services.

Part-time workers are entitled to a pro-rata entitlement. For example, 5.6 days holiday per year if they work one day a week. Employees who work irregular days or hours or that are in the first year of a new job can use HMRC’s holiday entitlement calculator to work out how many days they are entitled to.

Any employee that has a problem with their holiday pay should try and resolve the issue with their employer. If this does not work, there are a number of ways to resolve the dispute including contacting ACAS or taking their employer to an employment tribunal.

Reclaiming statutory sick pay

Under the Coronavirus Statutory Sick Pay Rebate Scheme, small-and medium-sized businesses and employers will be able to reclaim Statutory Sick Pay (SSP) paid for sickness absence due to COVID-19. The online service to reclaim SSP is not available yet. HMRC will announce when the service is launched.

The scheme covers up to 2 weeks’ SSP per eligible employee who has been off work because of COVID-19. Employers are eligible for the scheme if their business is UK based, small or medium-sized and employed fewer than 250 employees as of 28 February 2020. Employers must also have had a PAYE payroll scheme that was created and started on or before 28 February 2020. A claim can be made for employees that had / have Coronavirus, cannot work because they are self-isolating at home or are shielding in line with public health guidance.

Employers should maintain records of staff absences and payments of SSP, but employees will not need to provide a GP fit note. If evidence is required by an employer, those with symptoms of Coronavirus can get an isolation note from NHS 111 online and those who live with someone that has symptoms can also request a note from the NHS website.

HMRC’s guidance has been updated with information relating to the EU Commission temporary framework. Claim amounts should not be above the maximum €800,000 of state aid under this framework.

Coronavirus Job Retention Scheme guide by HMRC

The Coronavirus Job Retention Scheme that allows employers to claim cash grants of up to 80% of wages (capped at £2,500) for furloughed workers was officially launched at 8am on 20 April 2020. By midnight at the end of the first day, HMRC reported that 185,000 claims had been submitted with over 1.3 million employees classed as furloughed at a value of some £1.5 billion. The opening of the scheme was 10 days ahead of the expected date of 30 April.

HMRC expects to pay the grant within six working days from the time an eligible claim is submitted. The Chancellor also recently announced that the scheme will now be available until the end of June 2020.

HM Government guidance on the scheme for employers sets out the following important information:

  • To be eligible for CJRS an employer must agree with the employee that they are a 'furloughed worker'.
  • Employees must be notified that they have been furloughed.
  • Employees must be furloughed for a minimum of three weeks.
  • The employee cannot do any work for the employer that has furloughed them.
  • You can claim 80% of wages up to a maximum of £2,500 per month per furloughed employee.
  • A separate claim is needed for each PAYE scheme.
  • You can only claim for furloughed employees that were on your PAYE payroll on or before
    19 March 2020.
  • An RTI submission notifying payment in respect of that employee to HMRC must have been
    made on or before 19 March 2020.
  • You must have a UK bank account.