Are you up to date with the most recent payroll legislation?

As happens at this time each year, there have been many changes to the legislation regulating payroll. Ahead of sending us or your payroll provider your information for the upcoming payroll run, ensure you are aware of the changes to the following, which took effect from the beginning of April:
  1. Childcare vouchers
  2. National Minimum Wage and National Living Wage
  3. Pension contributions
  4. Statutory sick pay
  5. Statutory maternity, adoption, paternity and shared payments
  6. Tax on termination payments
       1. Childcare vouchers
After previously announcing in the 2016 Budget that new applications for childcare vouchers would close on 6 April 2018, the Government extended the entry deadline by an extra six months. This will allow your employees more time to decide whether the vouchers or the Tax-Free Childcare (TFC) initiative – which helps with the cost of childcare – is better suited to them. The exact date is yet to be confirmed, but is expected to be in October 2018 – we’ll update you when we know more.

       2. National Minimum Wage and National Living Wage
The Government increased the National Minimum Wage and National Living Wage rates, which took effect from 1 April. These changes see the largest increase that we have seen in a decade to the 18-20 and 21-24 year old rates.

The new rates are as follows:
Year 25 and over 21 to 24 18 to 20 Under 18 Apprentice*
April 2017 (current) £7.50 £7.05 £5.60 £4.05 £3.50
April 2018 £7.83 £7.38 £5.90 £4.20 £3.70
* The apprenticeship rate only applies to apprentices aged under 19, or 19 or over who are in the first year of their apprenticeship. Apprentices aged 19 or over in their second year of apprenticeship must receive the NMW or NLW rate their age entitles them to.
These new rates apply to the next payment reference period that begins on or after the date:
  • a rate increase begins (in this case, your April 2018 payroll run); or
  • an employee reaches a new age bracket.
      3. Pension contributions
The Government made a commitment to helping people save for retirement. As a result, the contributions you and your employees need to pay into workplace pensions are increasing.
The increases are being phased in and are said to be necessary based on the Pensions Commission’s calculation of the amount of savings required to help ensure people have a financially secure retirement. They estimate that individuals would need 45% of their pre-retirement income at state pension age after 40 years of saving – 30% coming from state benefits and the remaining 15% from private pensions saving through auto enrolment. In order to reach this level, an average earner would need to save around 8% of their earnings for around 40 years.

The phased rates are as follows:

Minimum contribution based on qualifying earnings
  Employee Employer Total
From 6 April 2018 3% 2% 5%
From 6 April 2019 5% 3% 8%
From 6 April, the threshold for qualifying earnings changed to £6,032 – £46,350. We explore these changes and how they will affect your contribution, giving useful examples, in our blog here.

Minimum contribution based on basic pay
  Employee Employer Total
From 6 April 2018 3% 3% 6%
From 6 April 2019 5% 4% 9%
Minimum contribution based on basic pay (provided basic pay is at least 85% of total earnings)
  Employee Employer Total
From 6 April 2018 3% 2% 5%
From 6 April 2019 5% 3% 8%
Minimum contribution based on total pay
  Employee Employer Total
From 6 April 2018 3% 2% 5%
From 6 April 2019 4% 3% 7%
     4. Statutory sick pay
Below are the revised rates of statutory stick pay, payable from the first day of the new tax year – 6 April 2018. The changes apply to the average weekly earnings (AWE) at or above the earnings threshold (LEL), which is £116 per week for 2018/19:
Unrounded daily rates Number of qualifying days in week Number of days sick
1 2 3 4 5 6 7
£   £ £ £ £ £ £ £
13.1500 7 13.15 26.30 39.45 52.60 65.75 78.90 92.05
15.3416 6 15.35 30.69 46.03 61.37 76.71 92.05  
18.4100 5 18.41 36.82 55.23 73.64 92.05    
23.0125 4 23.02 46.03 69.04 92.05      
30.6833 3 30.69 61.37 92.05        
46.0250 2 46.03 92.05          
92.0500 1 92.05            
     5. Statutory maternity, adoption, paternity and shared parental payments
Whilst statutory sick pay is always payable from the first day of the new tax year (6 April), the other statutory payments apply from the week that commences the first Sunday in April – this year that was 1 April. The new rates for 2018/19 are:
Payment Rate
Earnings threshold (LEL) £116
SMP / SAP weekly rate for first 6 weeks £145.18^
· SMP weekly rate for up to next 33 weeks
· SAP weekly rate for up to next 33 weeks
· SPP weekly rate
· ShPP weekly rate
SMP, SAP, SPP and ShPP optional daily rate £20.74
^or 90% of AWE, whichever is the highest

The percentage of payments and NI that are recoverable, including for smaller employers under the Small Employers’ Relief and the annual threshold for this, are now as follows:
Percentage of payment recoverable 92%
Percentage of payment recoverable under Small Employers’ Relief 100%
NI compensation recoverable under Small Employers’ Relief 3%
Annual NICs threshold for Small Employers’ Relief £45,000
    6. Tax on termination payments
Not all sums payable under a settlement agreement are tax free, so you need to break down the different elements of a package and consider each part separately.

From April 2018, the following will be subject to tax and NICs:
  • Payments in Lieu of Notice (PILON): currently, if you don’t have a contractual right to make a PILON, any payment made in respect of an employee’s notice entitlement is generally regarded as ‘damages for breach of contract’ and the first £30k can be tax-free (and no NICs are due). Now, all PILONs will be taxable and subject to NICs, whether a contractual right is present or not.
  • Post-employment notice income: if an employee doesn’t work their notice (for whatever reason) they still need to pay tax and NICs on any payments which correspond to the earnings they would have received if they had worked their notice. These earnings will be calculated on the basis of their actual earnings in the previous 12 weeks, including compensation for loss of taxable benefits (even if there was no PILON clause or it provided for basic salary only).
  • Expected bonus income: this includes any bonus that the employee would’ve earned during their notice, or at another time, which relates to a time before their employment ended or the time that would have been their notice period. ‘Bonus’ includes commission, incentives or anything similar.
  • Tribunal awards for unfair dismissal, redundancy payments and contractual payments in lieu of redundancy will continue to benefit from the £30k exemption.
What should you do?
It’s your responsibility, as an employer, to ensure your employees are paid in accordance with the changes outlined above. Automatic updates won’t be made to accommodate these changes, so it’s important you ensure you send the correct information to your payroll provider.

How can we help?
Running a payroll efficiently requires sound processes, as well as technical knowledge to ensure that all changes in tax rates and regulations are applied correctly. We provide tailored services to meet your individual needs, offering simple advice or full support through a fully managed, outsourced payroll function. If you are uncertain as to how the above changes affect your payroll and the tax that you as an employer will pay, or you’re considering outsourcing your payroll, contact our Payroll Director, Maria Mason.

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