National Payroll Week is here; the annual celebration of the vital work done by payroll teams all over the UK. Established in 1998 by the CIPP (Chartered Institute of Payroll Professionals), the event recognises the efforts made by those in the payroll industry, making sure the UK gets paid come rain or shine!
For our contribution to this year’s event, we’d like to introduce you to some of the most frequently asked questions that crop up on issues related to payroll.
This, of course, is just the tip of the iceberg for our payroll experts. If you have a question that is not answered here – feel free to get in touch and our payroll specialists will be happy to help.
What are the rules around SSP (Statutory Sick Pay)?
Statutory Sick Pay (SSP) can be received by employees who are too ill to work. The current rate of SSP is £96.35 a week, which is paid by the employer for up to 28 weeks.
There are specific qualifications that must be met to receive SSP. Firstly, you must be classed as an employee and have worked for your employer. Secondly, you must earn at least £120 per week on average, which is considerably less than a full-time employee on minimum wage would take home. Finally, you must have been ill for at least 4 days in a row.
Exceptions to this are if you are receiving Statutory Maternity pay, or if you have already received SSP for a period of 28 weeks.
Employees instructed to self-isolate, even if they are not ill, qualify for SSP providing their self-isolation is for at least 4 consecutive days.
Employers may offer additional sick pay, and we encourage all employees to check their employment contract or consult their payroll department for more information. Further information about SSP rules can be found on the UK Government website.
How are employee bonuses paid and taxed?
Many organisations pay bonuses to reward employees – there are two main types of bonus scheme: discretionary and non-discretionary.
Discretionary bonuses will not be written into your contract and will not be based on pre-defined performance criteria. Non-discretionary bonuses may be written into your contract, and employees will be given clear information on what they need to achieve to receive the bonus. Employers will be legally obliged to pay these bonuses should the employee qualify.
Bonuses may be individual, team or companywide. They may also take many forms, including cash, gifts, vouchers, gift-cards, or company shares.
For cash bonuses, the bonus will usually appear on your payslip and be included in your gross pay figure for the month it is paid out.
A cash bonus will be taxed the same way as your salary. Depending on how the bonus is paid, there may be numerous tax implications. The bonus will be subject to income tax, national insurance and other deductions (like student loan repayments or pension contributions). In some cases, a cash bonus added to your earnings may push you into a higher tax bracket.
If you have specific queries relating to how bonuses can affect personal taxes, we recommend seeking independent financial advice.
How do you calculate holiday pay?
An employee’s entitlement to holiday pay varies depending on their work schedule; this amount will equate to a week’s pay for each week of statutory holiday they use.
- For people working either full or part time on fixed pay with fixed hours, their holiday pay will reflect a standard week’s pay.
- For people working shifts with fixed hours, their holiday pay will be the average weekly hours they have worked in the last year (52 weeks). This will reflect the average hourly rate.
- For employees on zero-hours contracts, or other arrangements with no fixed hours, a week’s holiday pay will be their average pay from the last 52 weeks.
The UK government website has a calculator that you can use to find out your holiday entitlement.
How do you calculate maternity pay?
For eligible employees, Statutory Maternity Pay (SMP) lasts up to 39 weeks, including a 6-week period receiving 90% of your average pay, followed by a further 33 weeks of whichever is less out of 90% of your average pay, or £151.97 a week. Each of these figures is before tax.
In addition to Statutory Maternity Pay, you may be entitled to contractual maternity pay, which is determined by individual organisations and included in employment contracts. For information on contractual maternity pay, you should check your employment contract or consult your payroll or HR team.
Can you opt out of pension contributions?
If your employer has enrolled you into a workplace pension scheme, but you do not wish to join it, you can opt out by contacting the pension provider directly. You will be able to get the necessary details for the pension provider from your employer.
Usually, the pension provider will then give you instructions on how to leave the scheme. Sometimes this process can be done online, or it may involve completion and submission of forms.
It is important to note that you will only receive your own contributions, not those made by your employer (if applicable). Before opting out of a pension scheme, make sure you are fully aware of any benefits you may miss out on, and consult an expert if you are unsure.
Why do tax codes change?
A person’s tax code will usually change in the event of their personal allowance going up or down. There are many reasons why this may happen, such as changes to taxable benefits, changing jobs or getting married. It is important to make sure your tax code is correct – which you can do on the HMRC website.
Can you be paid on a bank holiday?
For many, bank holidays are often one of the highlights of the year. When it comes to payroll, they can raise a few questions!
Most transactions cease on a bank holiday, as banks and other financial organisations close for the day. This means they can’t process any transactions, including processing payroll. In short, you cannot be paid on a bank holiday.
To mitigate this, payroll teams will normally process pay a day or two early to ensure nobody is paid late. We recommend consulting your payroll team if you are unsure of when you will be paid.
How is redundancy pay calculated?
In the unfortunate event of redundancy, employees may be entitled to receive redundancy pay. Like other forms of non-standard pay (such as maternity pay and sick pay), redundancy pay can be split between two types: statutory and contractual. Each of these is paid our by the employer.
Statutory redundancy pay is calculated based on a person’s gross pay (earnings before tax), and varies based on the age of the recipient, and how long they have worked for the organisation.
- People aged 41+ receive 1.5 weeks’ pay for every full year they have worked for their employer.
- People between ages 22-40 will get 1 week’s pay per full year worked.
- People under the age of 22 will get half a week’s pay per full year worked.
Redundancy pay is not subject to tax, but is subject to limitations, including a maximum weekly amount of £544 and a maximum of 20 years. Someone who has worked at an organisation for 30 years will get statutory redundancy pay for a maximum of 20.
Contractual redundancy pay, as the name suggests, is additional redundancy pay that is determined by the employer. For information about contractual redundancy pay, you should check your employment contract or contact your employer.
What is the national minimum wage and national living wage?
The National Minimum Wage is the minimum hourly wage that a person is legally entitled to. This amount varies depending on their age and their employment status (whether they are an apprentice or not).
The National Living Wage was introduced in 2016, which is paid to workers over the age of 23 (previously over 25). The National Minimum Wage still applies to those under the age of 23.
The current national living wage is £8.91 for people aged 23 and over. For people aged 21-22, the national minimum wage is £8.36. For people between 18-20, it is £6.56. For under 18s, it is £4.62. The national minimum wage for an apprentice is £4.30.
The minimum wage for the highest age group has increased from £6.19 in 2012 to £8.91 in 2021, while the minimum wage for apprentices has increased from £2.65 to £4.30 in this period.