Dealing with employee pay can be the single most time consuming financial process within any size business. The legal requirements can be broken down into a number of basic areas.
What has to be done can be summarised as follows:
- You act as collector of income tax (PAYE) and National Insurance Contribution for the government.
- Pay Statutory Sick Pay (SSP and Statutory Maternity Pay (SMP) if due.
- Ensure you give equal pay to employees carrying out equal value work.
You need to make some basic decisions concerning how much each employee should be paid and how often they should be paid (i.e. weekly, fortnightly, every 28 days or every calendar month). Bonuses, commissions, overtime, holiday and sick pay can be negotiated separately and of course, all of the above should be reviewed at least annually with each employee.
Pregnant employees have several rights, such as not to be unfairly dismissed, maternity leave and the right to return to work. To qualify your employee must be a full time employee and have been employed by you for 26 weeks, continuing into the 15th week (known as the qualifying week) before the baby is due. The amount of SMP is 90% of earning for six weeks, followed by 12 weeks at the current government rate. Generally only 92% is reimbursed to employers, but possibly 100% if your business falls within small employers relief for Statutory Sick Pay. This applies if the NI contributions you pay annually come to more than £20,000.
If you have agreed to pay sick pay, there are many rules governing how much and when it should be paid and how much can be reclaimed under the small employer’s relief scheme. In most cases SSP will have to be given at the current rate. All employers are eligible to reclaim SSP paid out in any month, but only if it is over 13% of NI paid. This new relief is called the Percentage Threshold Scheme (PTS) and is designed to protect employers from heavy costs if there is an epidemic.
You cannot pay one employee more than another on purely arbitrary grounds like gender. If employees are doing broadly similar work or work of equal value, everyone should be paid the same and given the same terms of employment.
Taxation and National Insurance
A significant responsibility for any employer is acting as a tax collector on behalf of the government collecting both Tax and NI contributions from employees’ pay. Any deductions made must be detailed in a written pay statement.
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