Pay and Benefits

As a new employer, you will need to set up an approved automated recording system to pay your staff and track (and account for) their wage payments, overtime payments and expense reimbursements. Any employee information regarding pay and benefits must be processed in accordance with your Data protection policy and employee privacy notice - a statement describing how you collect, use, retain and disclose personal information.

Employers and employees can freely negotiate and agree on pay and benefits, so long as there is no discrimination on any unlawful ground and the various rules (see below) are met.

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Hourly pay must meet the national minimum wage, including overtime and on-call time spent on the employer's premises.

The minimum wage varies by age and can be checked here.

Compliance is assessed over each payment interval (ie for employees paid daily, it would be calculated for each day, if monthly then calculated each month).

Benefits other than accommodation do not count towards satisfying the minimum wage.

Employees are entitled to at least 5.6 weeks' paid leave each year.

For employees working five days a week this means 28 days inclusive of public holidays. There is no requirement to give leave on public holidays (in England and Wales there are 8 bank holidays, while in Scotland there are 9).

Since 2015, voluntary overtime can be included in holiday pay.

Part-time employees should not be treated less favourably than comparable full-time employees in their entitlement to pay and benefits. On that basis, they are entitled to a pro-rated holiday entitlement, according to the proportion of full-time hours that they work.

Employees must be given a rest break if the working day exceeds six hours and cannot work for more than 13 hours a day. They must also either have 24 hours' continuous rest a week or 48 hours a fortnight.

When an employee has taken more leave than they are entitled to and their employment has since been terminated, an employer may be entitled to compensation, depending on whether the employee's contract of employment allows for this.

The employee's contract of employment should specify their entitlement to annual holidays. Otherwise, holiday entitlement is calculated by multiplying the number of days worked each week by 5.6. For example, workers who are contracted to work five days a week must get at least 28 days off a year (5 days x 5.6) including public holidays. If a worker is contracted to work three days a week, their leave entitlement will be 16.8 days off a year (3 days x 5.6).

When a worker has fixed working hours, overtime would be any additional hours worked. Overtime can be compulsory or voluntary (ie it may be offered or requested by an employer during very busy periods). Paid overtime is more common with hourly paid staff than salaried staff. The pay rate for overtime, if any different to normal pay, should be clearly outlined in the employee’s employment contract.

From 1 October 2012, employers must enroll employees into the new government-established pension scheme called the National Employment Savings Trust or into another pension scheme meeting minimum requirements (Auto-enrolment).

All employees on the same PAYE (payroll tax) scheme count towards the threshold.

Employers and employees subject to auto-enrolment must make minimum pension contributions.

As of 1 October 2012, the old requirement to provide access to a designated stakeholder pension scheme Stakeholder Law was repealed.

However, employers who have already made pension arrangements under the Stakeholder Law may choose to continue those arrangements and may be obliged to do that if any employees have already chosen to participate in that scheme.

Employees who are absent from work through ill-health are entitled to Statutory sick pay at a rate set annually by the UK government.

For many people bonus pay makes up a significant amount of their annual salary. Bonus payments can be either guaranteed as part of an employment contract or discretionary. 

Many bonus payment schemes are a mixture of guaranteed under contract or discretionary. This means that employees may have the right to be considered for a bonus, the employer has the final say as to whether to pay it out or not. 

For further details you can read our legal guide, Bonuses at work.

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