Hours on payslips
25 June 2018
This article was featured in the July - August 2018 issue of the magazine.
Samantha Mann MAAT, MCIPPdip, CIPP senior policy and research officer, provides background to and an explanation of imminent fundamental changes that will affect many if not all pay statements
Earlier this year two orders were laid before Parliament that will effect change to section 8 of the Employment Rights Act 1996 (‘the 1996 Act’). Taken together they will obligate the employer when making a payment by reference to time worked to clearly display the number of hours being paid.
Additionally, as well as providing payslips to all employees, the right to receive a payslip is to be expanded to all workers. All employees are ‘workers’ but not all workers are employees. This obligation will take effect from April 2019.
Are your processes sufficient to ensure that you comply?
Why intervention is necessary
Workers – as distinct from employees – are not by law entitled to receive a payslip. Despite having no such legal right, government understand that some workers do currently receive a payslip; particularly those who work alongside employees since individual employers do not typically differentiate between the two, where the pay of each is being processed via pay as you earn (PAYE).
But for those workers whose pay is not being processed via PAYE or because they are deemed to be a worker but not an employee, there is a lack of transparency regarding their pay because, in many cases, they are not entitled to receive any of the statutory information required on an itemised pay statement.
In its 2016 spring report, the Low Pay Commission (LPC) made a non-rate recommendation that the government should consider introducing a requirement that payslips of hourly-paid staff clearly state the hours they are being paid for.
Currently, under the National Minimum Wage Act 1998 (‘the 1998 Act’) employers are required to keep a record of information sufficient to establish that the employer is remunerating the worker at a rate at least equal to the National Minimum Wage (NMW). A worker only has a right to access this information upon request, but this right is qualified: the worker can only access the information to determine whether they are being paid the NMW when they reasonably believe they are not. As a result, workers who are paid according to their time worked may not have sufficient information to identify whether the hours that the employer is using to calculate their gross pay is commensurate with their own understanding.
Government intervention is therefore believed to be necessary in both these areas to enable workers and employees to benefit from a greater level of transparency of pay which will be provided by the itemised pay statement. It is further believed that this information will in turn help employees and workers assess whether they have been paid correctly and empower them to challenge their employers or contact the Advisory, Conciliation and Arbitration Service (ACAS) and/or HM Revenue & Customs (HMRC) where they think they have been underpaid.
In the longer term, government believe that these measures will reduce non-compliance.
...enable workers and employees to benefit from a greater level of transparency...
Implementation April 2019
The recommendation by the LPC was accepted by the Department for Business Energy and Industrial Strategy (BEIS) and the Employment Rights Act 1996 (Itemised Pay Statement) (Amendment) Order 2018 (https://goo.gl/VJka1N) will come into force from 6 April 2019.
This order amends section 8 of the 1996 Act to add to the particulars required within an itemised pay statement to also contain information regarding the number of hours worked by the employee for which they are being paid, but only in situations where the employee’s pay varies as a consequence of the time worked. The amendment states:
“…where the amount of wages or salary varies by reference to time worked, the total number of hours worked in respect of the variable amount of wages or salary either as:
(i) a single aggregate figure, or
(ii) separate figures for different types of work or different rates of pay.”
The amendments made by the order do not apply in relation to wages or salary paid in respect of a period of work which commences before the date the order comes into force.
In addition, the Employment Rights Act 1996 (Itemised Pay Statement) (Amendment) (No.2) Order 2018 (https://goo.gl/8BSgMx) provides for an additional change that extends the right to receive an itemised pay statement, together with the ‘associated enforcement provisions’, to all workers and not just employees who work under a contract of employment.
The government, during informal consultation in 2017, apparently looked at other options which included requiring all employers to state on the payslips of all ‘timed’ employees, the number of hours and pay for NMW purposes (as defined by the 1998 Act). They also considered a non-regulatory option that would see employers voluntarily provide the hours paid for on the payslips of their employees; and, in parallel, guidance would be issued, and promotional campaigns would be run. Neither it seems were considered appropriate.
The government estimate the total one-off cost to employers will be £23.1 million. This includes all employers having to familiarise themselves with the proposals (£13.8 million), and 12% of employers having to upgrade their payroll software so as to comply with the inclusion of hours (£9.3million).
There could also be significant ongoing costs (£26.9 million) for some employers who only employ workers. It is estimated that 1% of the workforce currently don’t receive a payslip and that all of these are workers. So, these employers will have to produce a payslip from scratch at an estimated cost of £4.9 million, and the extra burden of inputting for employers to record the number of hours into their payroll systems will be approximately £22 million.
It is believed that the changes will likely affect the number of challenges that employers, HMRC, ACAS and employment tribunals have to deal with. However, the provision of extra information should increase the number of well-founded, evidence-based challenges. In addition, due to the employees being more informed, it should reduce the number of ‘unfounded’ challenges.
The CIPP policy and research team, together with members spanning all specialisms within payroll, were working with BEIS throughout 2017 to provide survey and anecdotal evidence as to the current working practices as they relate to the provision of payslips.
As part of that work and on behalf of BEIS we published two surveys for members and the wider payroll profession. We believed that it was vital that BEIS were in possession of all the facts, views and experiences when discussing the issue with members and in advance of producing legislative change.
The results showed that a slight majority of respondents already provide this information on their payslips; however, a significant number do not, nor were they sure whether their software would enable them to do this.
...current silence is a sign that they are working furiously hard on producing such guidance...
What do we need now?
The minimalistic wording in the order will need to be bolstered by good, clear, unambiguous guidance and we remain committed to working with BEIS to ensure its timely and accurate production ahead of April 2019. We assume that BEIS’s current silence is a sign that they are working furiously hard on producing such guidance.
We are already well into the 2018–19 tax year and guidance is needed to enable software developers to adapt their software, where needed, and to prepare their clients for the change that will introduce a legislative obligation on employers where previously there was none.
Questions abound and are being presented to BEIS. At the time of writing (June), we await details of a roundtable that BEIS have said will be held to allow “ample time to prepare for change”. We will of course publish further updates on this through our news pages.
In 2017, and in addition to the larger surveys, the policy team also ran a quick poll alongside our news section of the CIPP web page and we asked: “If you have hourly-paid workers, do you include the number of hours for which they are being paid on their payslip?”.
We had an amazing number of responses: 933 in total of which 111 or 12% did not.
I finish therefore with a question for that 12% – what do you now need to do in order to adapt your processes to ensure that you comply with legal obligations from April 2019?