Pay and Pensions Law

As an employer, payment and pensions are amongst your most important responsibilities. You have a range of legal obligations when it comes to pay and pensions, and you must make sure that you fulfil these.

But the range of requirements can be confusing. So what are the main factors that you must consider?

National Minimum Wage

Perhaps your most important legal responsibility when it comes to pay and pensions is the National Minimum Wage (NMW). This is now at the heart of payment law in the UK.

The NMW operates on three different levels, depending on age an employment status. The lowest rate is £3.30; this applies to apprentices who are either under 19, or over 19 but less than a year into their apprenticeship. Workers who are above school leaving age, but still younger than 18, are entitled to be paid £3.87 an hour. This rises to £5.30 for those aged between 18 and 20. Finally, the main rate is £7.20, and this applies to workers aged 21 or more. Please note that these rates are correct as of July 2016, but are subject to annual change.

It is not possible to ‘opt out’ of the NMW. You must pay your workers at least the rate to which they are entitled – even if you give them a contract that states they will be paid less.

PAYE

If you have employees who earn more than the Lower Earnings Limit, you are obliged to operate a Pay As You Earn (PAYE) scheme.

A PAYE scheme means that you make certain deductions from your employees’ wages ‘at source’. These deductions include income tax, National Insurance Contributions, and perhaps things like student loan payments.

You work out the deductions you make by looking at each employee’s tax code. You will then be required to pay those deductions, along with your employer National Insurance Contributions, to HMRC either monthly or quarterly.

PAYE can be a confusing system. More information is available in the start-up pack that HMRC will send you when you become an employer.

Pension Contributions

With the new provisions of the Pensions Act, businesses of every size will be required to offer automatic enrolment in a pension scheme to their qualifying employees. They will also be required to make contributions to those pensions, at a rate of 3 per cent of the employees’ earnings. Employees will qualify if they are aged between 22 and the State Pension Age, and their earnings exceed the income tax personal allowance.

The new provisions of the Pensions Act are being gradually phased in, and the smallest businesses will not have to comply for a few years. But it is vital that you take action to enable compliance now, and that you factor the increased cost of pension provision into your financial forecasts.