HR Masterclass for Small Businesses: Pay and benefits

At Nectar HR, our goal is to cut through the noise of a busy world and guide you to success.

We focus on what your needs are. This means we can quickly and clearly get to the root of the problem and provide a solution. We also know how difficult it is to juggle the demands of running a small business. Particularly when you start adding people into the mix and things get… well, complicated.

With that in mind, we want to provide free and useful information as you grow your business. Our goal is to help you make the right decisions that save you time and money.

We have created a 5-part series called the HR Masterclass for Small Businesses. Each instalment breaks down those essential elements you need to think about and act upon as a small business owner.

So, here is the first instalment, where we will discuss your pay and benefits obligations.

1. Pay (at least) the legal minimum

First things first, you have a legal obligation to pay your workers. And they must receive either the National Minimum Wage (NMW) or National Living Wage (NLW), which is currently as follows:

By law, you must pay your employees the correct rate according to their age (and apprentice status, where applicable). This changes every April, so ensure your payroll is updated annually to reflect changes. Set a reminder if you need to – it’s that important.

Remember: you will also need to make National Insurance contributions on their behalf, as well as paying employer’s National Insurance.

2. Statutory payments

There are also a number of statutory payments that you are required to pay employees in certain circumstances.

If an employee is off sick, they are entitled to a Statutory Sick Payment (SSP) of £96.35 for up to 28 weeks. There are criteria that apply for them to be eligible for this, however. For example, there is a qualifying period whereby an employee must have been off sick for four days before they are eligible for SSP. Note that this is currently different if they are off sick due to COVID-19.

You are also legally obliged to pay your employees when they become parents, as follows:

• Statutory Maternity Pay (SMP)
  • For the first six weeks, you must pay 90% of their weekly earnings.
  • £151.97 or 90% of the employee’s average weekly earnings, whichever is lower for the remainder of their statutory maternity leave.
• Statutory Paternity Pay (SPP)
  • £151.97 or 90% of the employee’s average weekly earnings, whichever is lower, for up to two weeks.
• Statutory Adoption Pay (SAP)
  • For the first six weeks, you must pay 90% of their weekly earnings.
  • £151.97 or 90% of the employee’s average weekly earnings, whichever is lower for the remainder of their statutory adoption leave.
• Statutory Shared Parental Pay (ShPP)
  • £151.97 or 90% of the employee’s average weekly earnings, whichever is lower.

You may also be able to recover a portion of these payments, if:

• 92% of your total Class 1 National Insurance (both employee and employer contributions) are above £45,000 for the previous tax year; or
• 103% if your total Class 1 National Insurance for the previous tax year is £45,000 or lower.

Furthermore, following new legislation that came into place last year. Parents who have a child under 18 who dies, or who have a stillborn baby after 24 weeks, are now eligible for two weeks of Statutory Parental Bereavement (SPB) leave. SPB is payable at £151.97 or 90% of the employee’s average weekly earnings, whichever is lower.

3. Pay into a pension scheme

You must set up and maintain a workplace pension scheme for eligible staff, and they must be automatically enrolled into this pension scheme if they are eligible to do so, unless they opt out.

You also need to pay at least 3% of your employee’s ‘qualifying earnings’ into your staff’s pension scheme. Check your specific pension scheme’s rules, but generally, under most schemes, it’s the employee’s total earnings between £6,032 and £46,350 a year before tax. Total earnings include:

• Salary or wages
• Bonuses and commission
• Overtime
• Statutory sick pay
• Statutory maternity, paternity or adoption pay

You need to deduct contributions from your staff’s pay each month and pay these into their pension scheme by the 22nd day (19th if you pay by cheque) of the next month.

You must pay contributions for each employee by the date you’ve agreed with your provider every time you run payroll. And you must backdate any missed payments.

4. Annual leave is a statutory benefit

All workers have a statutory right to a minimum of 5.6 weeks paid holiday every year.

This can be pro-rated for part-time staff.

It can also include bank holidays. There is no obligation for you to give employees bank holidays as additional paid leave.

5. A payslip is a must, not a benefit

From April 2019, employers are required to provide an itemised payslip to all workers. It must detail hours where the pay varies by the amount of time worked.

The cost of getting it wrong…

And it is worth noting that if you dismissed an employee because they asserted their right (under the Employment Rights Act 1996) to receive these statutory benefits, that the law would view this as automatic unfair dismissal. The maximum compensation a tribunal will award is usually equal to one year’s pay (subject to a limit of £78,962, in addition to a basic award of a maximum of £14,370).

For more information or if you have any questions about your obligations as an employer, please do get in touch. Or why not contribute to the conversation on LinkedIn?

Join us for the next instalment, where we will talk about contracts of employment and terms and conditions.

In the meantime, please check out our HR Consultancy Birmingham.