J&K payroll

Small business payroll service

6 Things Every Employer Should Know About National Minimum Wage

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This article updated Sep 2017.

1. Key facts about NMW

  • It’s a criminal offence to not pay someone the National Minimum Wage
  • It applies to most workers over school leaving age including casuals, part-timers and agency workers
  • All businesses must comply – regardless of size

2. Who’s not entitled to NMW?

Those not entitled include:

  • self-employed people
  • company directors
  • volunteers

3. Why it matters to employers

If your company has underpaid its workers, the consequences could be severe:

Arrears

You must pay arrears to the worker immediately and you may end up paying more than you would have if you had paid the correct amount to start with. In one instance, a national retailer was forced to make back payments of £193,000 for almost 3,500 workers after it required them to be at work before and after opening hours without pay.

Naming and shaming

HMRC will now publicly name any employer, big or small, who breaks minimum wage law. For example:

  • Debenhams Retail plc, London NW1, failed to pay £134,894.83 to 11,858 workers
  • French Connection UK Ltd, London, neglected to pay £16,436.05 to 367 workers
  • Mr Garry Evis, trading as Woodside MOT and Service Centre, Middlesbrough, neglected to pay £232.55 to 1 worker

Penalties and prosecution

On top of the arrears, employers risk financial penalties of up to £20,000.

Criminal prosecution is rare but the most serious cases can be heard in a Crown Court, meaning that there’s a potential for an unlimited fine.

microscope

Would your business stand up to scrutiny?

4. How is NMW enforced?

HMRC have the power to check your wages at any time – it’s your responsibility as an employer to keep records proving compliance with NMW and you have to keep these for 3 years.  You could be randomly targeted or a worker’s complaint could trigger an investigation.

Out of the blue, our biggest client received a random minimum wage inspection. The HMRC inspectors spent a full day digging into the payroll and payment records.

We dealt with the entire assessment on behalf of our client and were happy to host the compliance team at our premises, where they delved into the current year’s files as well as the previous 3 years, picking staff at random and tracing from timesheet to bank account.

We spent the day making them tea and being quizzed in depth, using paper and electronic records to prove compliance. With a good understanding of the business, we could answer HMRC’s questions with confidence.

The client passed the inspection with flying colours.

5. What is the current NMW?

The rate change is now in April each year. Rates for previous years can be found at gov.uk.

Age 25 and over 21 to 24 18 to 20 Under 18 Apprentice*
Rate from
1 Apr 2017		 £7.50 £7.05 £5.60 £4.05 £3.50
Rate from
1 Apr 2018		 £7.83 £7.38 £5.90 £4.20 £3.70

*This rate applies to apprentices under 19 or those in their first year. If the apprentice is 19 or over and past their first year they must receive the rate that applies to their age group.

6. Where can I get more help?

A good payroll provider will watch out for NMW compliance issues as part of the service. If yours doesn’t, call us for a quote.

  • ACAS 0300 123 1100 (Mon to Fri 8am-8pm, Sat 9am-1pm)

ACAS gives free impartial advice to employers and workers.

Follow this link to report NMW breaches.

This article updated Sep 2017.

Image credit: University of Liverpool Faculty of Health (CC BY 2.0)

What Will Your Workplace Pension Cost You?

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Over 1 million organisations – each employing fewer than 50 people – must have a workplace pension in place between now and the end of 2017.
Learn what it means for your business.

Preparation costs

Worryingly, most employers have found the process more difficult than they’d expected. Experts say even the smallest company could take up to 100 man days to prepare.

Time is money. 100 days =  800 hours. Even at minimum wage that’s over £5000. Preparation includes:

  • Choosing a pension scheme
  • Checking staff details
  • Gathering missing information
  • Communicating to staff
  • Integrating with payroll

You may also need help from professionals such as a financial adviser, pension provider, accountant, or payroll service. The later you leave it, the higher their fees will be.

Contribution costs

minimum contributionsEmployers must pay in to the pension fund.

Factor this into your financial forecasts – you’ll need to stump up at least 1% to start with and by 2019, employers must give at least 3%.

Example: your employee earns £10,000. It’ll cost you an extra £8.33 per month. You’ll want to remember that when calculating pay rises!

Penalties

If you don’t pay the correct contributions on time you risk an immediate fixed penalty of £400 and – if you still do not pay – an escalating penalty which accrues daily.

Payroll costs

Workplace pensions are not a one-off effort.

  • Employers (or their payroll agents) must continuously assess the workforce.
  • Exchanging information with the pension provider every pay period.
  • Reconciling and paying contributions.

These tasks will increase the cost of running your payroll.

Act now

Every employer must act. Don’t ignore Workie!

Workie

Fake tax refunds and other email scams

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Only 30% of small businesses surveyed would think twice about clicking on a link directing them to HMRC


You should think twice.

Scammers regularly send fake emails that look like they are from HMRC, or from banks and other organisations like eBay, PayPal, Facebook and even Royal Mail. They aim to trick you into revealing personal information which they’ll use for fraud and identity theft. It’s known as phishing.

fish and hook

Don’t take the bait

 

Tax rebate

The Self-Assessment deadline is looming so this particular dodgy email is common around this time of year. It says you’ve got a refund of £x due to you, and offers a link to “get your rebate now”.

phishing email

The link takes you to a site that looks convincing to a casual observer – but it’s not the real deal.

Often these messages end up in your Spam folder and you never see them. If they do get to your Inbox, remember HMRC’s golden rule:

HMRC will never send notifications of a tax rebate, or ask you to disclose personal or payment information by email.
If you have any doubt that an email you receive from HMRC is genuine, please do not follow any links, disclose any personal details or respond to it. Please forward it to HMRC at phishing@hmrc.gsi.gov.uk then delete it.

How to spot a phishing email

A 2013 poll found that 60% of UK workers will fall for a phishing scam unless they’ve been trained to spot one.

  • are you expecting the message?
  • is it from an expected source? E.g. if you don’t bank with Barclays, why would they email you about your account?
  • does it ask for passwords or other complete information?
  • hover your mouse pointer over the links – don’t click them! – to check the website that pops up
  • how good is the spelling and grammar? Bad English is a dead giveaway!
Engage your brain!

Imagine the email is someone standing at your front door asking the same questions.

Would you give them this information?

If the answer is ‘no’ then it’s probably a scam.

If you wouldn’t do it on the street, don’t do it online!

Beyond email

It’s not just email – scammers are also using fake text (SMS) messages to reel in unsuspecting victims.

Learn more

Get Safe Online: phishing video

Gov.uk: recognising and reporting phishing emails

Financial Fraud Action: phishing

You might be streetwise, but are you cyber-streetwise?

Summer Budget 2015 round-up

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On 8 July the Chancellor revealed the government’s economic plans. We outline 4 items that will affect employers.

 tax

Squeezing one-man bands

Last year the government brought in the Employment Allowance, giving businesses up to £2000 off their employer’s National Insurance bill.

An employee’s Class 1 NI record is made up of two contributions:
a) paid by employers, and
b) deducted from employees’ pay.

The goal was to encourage job growth by making it cheaper to employ staff.

From April 2016, companies where the director is the sole employee will no longer be able to claim Employment Allowance.

No details yet whether companies with multiple directors (and no other staff) will also be affected.

 

National Living Wage

Currently the National Minimum Wage (NMW) has 3 age bands: under 18, 18 to 20, 21 and over.

From next April an extra age band of 25 and over will be added. This has been dubbed the “National Living Wage” (NLW).

NMW is £6.50 for 21 and over, rising to £6.70 on 1 October.

If your staff are 25 or over, their pay must rise again in April to NLW of £7.20.

 

Employment Allowance increase

To offset the cost of NLW for employers, the Employment Allowance will rise.

Employers will be able to cut up to £3000 off their employer’s National Insurance bill.

 

Corporation tax

Corporation tax will fall from 20% to 19% in 2017, and then drop to 18% by 2020.

 

RTI penalties delayed for small employers

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A small reprieve for small employers

HMRC announced a further postponement of RTI penalties – but only for employers with fewer than 50 staff. Larger employers are subject to “in-year penalties” from October 2014, whereas small businesses have until next March.

The move came after extensive lobbying by employers and the payroll industry, worried that HMRC’s systems just aren’t up to the job.

How to avoid HMRC penalties

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HMRC uses penalties to encourage compliance. There are 2 types to watch out for.

Payment penaltiesmissed payment

Pay on time

There are deadlines for paying your taxes. If you’re late in paying, expect to receive a penalty. You may also be charged interest every day until you pay the bill.

Pay electronically

Cheques can get lost in the post. Paying electronically e.g. via online banking is quick and easily trackable.

Use the right reference

However you pay, always include your accounts office reference, otherwise your money will end up in an HMRC slush fund instead of being correctly applied against your account!

Filing penalties

File on time

You must report Pay As You Earn (PAYE) wages in “real time” – in other words, on or before payday.

Weekly, fortnightly, monthly, whatever. Every time someone gets paid through payroll, you must tell HMRC.

File accurately

That’s why it’s so important that you tell us – in advance – about any changes to your payroll.

You may have to prove to HMRC that you weren’t careless in making an error.

 

More on filing penalties

What to do if HMRC say you owe PAYE

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Had a letter from HMRC’s Debt Management division? Don’t blindly pay it.

letter from HMRC Debt Management

So far this week, 3 of our clients have called us about letters from HMRC telling them they owe £100s.

All complete nonsense.

And it’s only Tuesday. <Sigh>

1. Check what you should have paid

Ask your payroll provider for a P32. This is simply a list of all the payments that you should have made to HMRC.

For example:

  Pay Period  Amount Due to HMRC for Period
     Quarter 1 total 295.92
     Quarter 2 total 75.48
     Quarter 3 total 112.29
     Quarter 4 total 180.96
Year Total 664.65

2. Check what you actually paid

This means going through your bank statements and finding every payment to HMRC. Note how you paid it: online, cheque, debit card etc. Note down the date that the money left your account, as well as the amount paid.

The total of all your payments should be the same as the Year Total on the P32.

If it’s not, then you either overpaid or underpaid somewhere along the line. Work out when and where.

3. What to look for

Page 2 of the letter is the statement of liabilities – pictured below. Look at the total unpaid amount. Sometimes it’s obvious that a payment has gone astray – if your cheque for £45.32 hasn’t cleared, and the statement says you owe £45.32, job done. Others take a bit of investigating.

Dates are key. I can’t stress that too highly.

Late payments cause the most common problem. When you pay late, HMRC will allocate the payment to the wrong period.

For example, look at the handwritten notes below. You can see that our client pays PAYE quarterly. Accordingly he made 4 payments, which each match the P32 above.

 

HMRC statement of liabilities

 

But now focus on when those payments were made. £180.96 was paid on 7 May. Not only was that late – it should have been paid by 19 April – but critically it was the last payment for the 2013/14 tax year.

Paying it late meant that HMRC automatically took it into the 2014/15 tax year.

4. Do your sums

To check your payments, first knock off any interest that HMRC have added, because the payments you are looking for obviously don’t include that.

So we’re actually looking for £256.61 minus 17p interest = £256.44

We’ve figured out from the payment dates that £180.96 must have been allocated to the new tax year. That leaves £75.48. Ring any bells?

Yep, it’s the payment made on 6 November.

5. Call HMRC

This is usually the painful bit, involving a good 20 minute wait to speak to someone. But funnily enough, when you ring Debt Management division, you get through straight away.

The first thing they ask is, “Are you making a payment?”

This is where you laugh and say, “No, cos I don’t owe you anything.”

 

laughing cat