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National Minimum Wage changes – what do they mean for you?

NMW changes – what do they mean for you?

Amendments to the National Minimum Wage (NMW) Regulations, should make compliance easier – this is what you need to know.

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Director, KPMG Law

KPMG in the UK

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The prospective changes could bring more people into the ‘salaried hours’ category, and allow one calculation year to be used for all such workers.  Employers must review their workforce to determine whether any action is needed to bring these changes into effect. Rules for payments for goods and services will also change. 

What are the changes?

Changes to ‘salaried hours’ work

Currently, individuals cannot be ‘salaried hours’ workers if they:

  • Receive a pay premium (e.g. an additional amount for working at a particular time or on a particular day, such as at night or on a bank holiday); or
  • Are paid other than on a weekly or monthly basis.

However, the Regulations will be amended so that workers can receive a premium in respect of basic hours and still be regarded as a ‘salaried hours’ worker.  

Working arrangements that relate to premium pay are prescribed by the Regulations, and we expect this to be interpreted narrowly.  The premium will still be ignored for NMW compliance purposes. 

The amended Regulations will also allow an individual to be a ‘salaried hours’ worker if they are paid in equal instalments which are at least monthly, and not more frequent than weekly.

This will permit employers to pay ‘salaried workers’ in additional payment cycles, including fortnightly and 4-weekly cycles. 

This provides additional flexibility as employers will have more options on how frequently they pay salaried hours staff. 

The risk of employers wrongly classifying individuals as ‘salaried hours workers’ should also reduce.

Changes to the Calculation Year for ‘salaried hours’ workers

The current Regulations determine a salaried hours worker’s calculation year by reference to the date the employment began. 

This poses a challenge for employers, as different calculation years apply to salaried workers depending on their start dates. 

However, the amendments will let employers align calculation years across their salaried hours workforce, and allow automated monitoring of salaried hours and pay, making compliance checks easier to administer.

Employers will need to give affected workers at least three months’ written notice of a new calculation year and ensure that five statutory requirements are met to benefit from this change.

Changes to reductions

The amended Regulations also clarify that where a worker makes a payment to their employer to purchase goods or services, and this is required by the employer, this will not reduce NMW pay if it is reimbursed by the employer (or this is the intention). 

This is a welcome and pragmatic change, which applies to all workers in their first pay reference period on or after 6 April 2020.

What do I need to consider?

The changes to salaried hours work apply to individual employees depending on whether they meet the existing definition of salaried hours work, or will only do so once the amendments are applied. 

For workers who already meet the definition of ‘salaried hours’ workers, the relevant changes come into effect on 6 April 2020. 

However, for workers who on 6 April 2020 would meet the salaried hours conditions only as a result of the proposed amendments (‘re-categorised workers’), the basic position is that these amendments will apply from the beginning of the worker’s first calculation year starting after 6 April 2022

The employer can bring forward this date by giving the worker a written notice which nominates an earlier day from which these amendments apply. 

Employers who believe they will have re-categorised workers should consider what communication is necessary for both impacted and un-impacted workers, and whether there are any nuances within these groups, in advance of April 2022.

How KPMG can help

KPMG advises on all aspects of NMW compliance and provides a range of services in a practical and commercial manner.  

We can review your contracts and working practices to assess whether you have salaried hours workers, advise on how to implement changes to meet the amended definition, and advise on how to monitor and evaluate your NMW compliance. 

More broadly, you may want to consider how NMW compliance differs depending on the four worker status categories, and whether any strategic changes need to be made to ensure all workers are paid at least NMW. 

For further advice on the April 2020 changes, contact Donna Sharp, Director and Solicitor, Employment Legal Services at KPMG in the UK (or your usual contact), or email employersclub@kpmg.co.uk.

© 2020 KPMG LLP, a UK limited liability partnership, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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