A cautionary note surrounding the leap year and National Minimum Wage / National Living Wage
03 January 2020
2020 is a leap year, which means that instead of the standard 365 days in the year being observed, there will be 366 as there is an additional day in February – the 29th. For many, this will have absolutely no impact on their pay whatsoever, but employers are being urged to exercise caution in certain scenarios.
For a large number of salaried employees, they will work the additional day and see no effect on their pay but, where their hourly rate is close to or sits at the National Minimum Wage (NMW) or National Living Wage (NLW), businesses are being urged to ensure that the additional day in the year does not reduce employee pay to below the legal minimum. Non-compliance could result in a potentially large fine from HMRC.
For employees who receive salaries that incorporate hourly rates substantially higher than the NMW / NLW, there will be no entitlement to additional pay for the extra day unless there is an explicit stipulation in their contract that relates to this. Alternatively, a conscientious employer may decide to make a goodwill payment in relation to the additional day, but this would be an entirely voluntary decision.
Where workers are paid by the hour or in terms of the amount of work they complete, things are much less complex as these people will feel the benefit of earning more should the additional day in the year mean that they carry out more work. This is because they are entitled to payment based on hours worked or work completed, and not to a fixed salary each year.
The CIPP recognises that the area of National Minimum Wage and National Living Wage is not always the most simple or transparent as there are a number of factors that need to be considered when ensuring compliance and making sure employees don’t get paid below the legal minimum. The penalties for breaching NMW and NLW requirements can be substantial. To assist payroll professionals on this subject, we offer a one day training course – ‘National Minimum Wage and other worker entitlements’ – the next one is being held in Manchester on 22 January 2020, and you can enrol here.
Information provided in this news article may be subject to change. Please make note of the date of publication to ensure that you are viewing up to date information. Download the CIPP's Payroll: Need to know - your guide to payroll legislation and reporting for the most up to date data.