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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.

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).

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. 

Employees aged 18 or over who work for more than 6 hours a day, are entitled to:

  • an uninterrupted rest break of at least 20 minutes, taken during the day rather than at the beginning or end (eg tea or lunch break)
  • 11 hours rest in a row between each working day
  • 1 rest day in each working week - this could be averaged out over 2 weeks, so you'd be entitled to 2 days off in a fortnight

In some circumstances a worker may be required to work during a rest period and have to take their rest later. This is known as compensatory rest. 

Compensatory rest breaks

In some circumstances a worker may be required to work during a rest period and have to take their rest later. This is known as compensatory rest. 

Workers may also be entitled to ‘compensatory rest’ if they don’t have the right to specific rest breaks. Compensatory rest breaks are the same length of time as the break (or part of it) that they’ve missed. Examples of when it may be necessary include where:

  • the worker's activities involve the need for continuity of service or production
  • there is a foreseeable surge of activity
  • an unforeseen circumstance which is outside of the employer's control requires it.

A worker may also be entitled to compensatory rest if:

  • they’re a shift worker and can’t take daily or weekly rest breaks between ending one shift and starting another
  • their workplace is a long way from their home (eg an oil rig)
  • they work in different places which are a reasonable distance from each other
  • they’re doing security and surveillance-based work
  • they’re working in an industry which is very busy at certain times of the year – like agriculture, retail, postal services or tourism
  • they need to work because there’s an exceptional event, an accident or a risk that an accident is about to happen
  • the job needs round-the-clock staffing so there aren’t interruptions to any services or production (eg hospital work)
  • they work in the rail industry on board trains or their job is linked to making sure trains run on time
  • their working day is split up (eg they’re a cleaner and work for part of the morning and the evening)
  • there is an agreement between management, trade unions or the workforce (a ‘collective’ or ‘workforce’ agreement) that has changed or removed rights to these rest breaks for a group of workers

Compensatory rest must be the same length of time as the break or part of the break that a worker has missed and an employer must ensure that every worker receives at least 90 hours of rest per week.

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.

An employee may receive a commission payment on top of their salary. This could be addressed in their contract of employment by way of a commission clause. There are many different ways of structuring a commission scheme. This could be by reference to volume of sales, value of sales or potential leads generated, a minimum threshold may need to be reached or the scheme may be "stepped" so that a different commission rate applies to different thresholds. The commission may be payable as a percentage of sales or as a fixed amount per sale or renewal or lead, before or after a deduction for costs.

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