National minimum and National Living Wage

The national minimum wage applies to all workers who are aged 16 and over, whereas the national living wage applied to all workers who are aged 25 and over. This also includes tax, national insurance, repayment of overpaid wages and student loan repayments, therefore the pay a worker received may fall short of the official minimum wage.

Workers are not restricted to earning these exact amounts, as employers may pay them higher than this. 

Apprentices are an exception to the national minimum wage, if the apprentice is under 16 or in the first year of their apprenticeship as they are considered to be earning whilst learning, therefore the apprentice pay is lower.   

The current minimum and living wage is as follows:

·      Apprentice under 19 or over the age of 19 and in their first year of their apprenticeship: £4.15 per hour

·      Under 18 years of age: £4.55 per hour

·      18-20 years of age: £6.45 per hour

·      21-24 years of age: £8.20 per hour

·      25+ years of age: £8.72 per hour 

These thresholds are reviewed annually by the government so you should check it every year. 

Some individuals are not entitled to the national and minimum living wage. These include:

·      Students on 1-year paid placements

·      Prisoners

·      Volunteers

·      Self-Employed

·      Company directors

·      Members of the armed forces

·      People living and working in religious communities

·      People working on a government run employment programme

Payslips

Workers must be provided with payslips from their employer, unless they are classified as exempt. Payslips may be printed or in an electronic form and should be made available to the worker on the date they are paid of before. Payslips should break down the workers’ wages paid and include the wage before any deductions, such as income tax and student loan repayments, and outline the final pay. It should also include any hours worked and the workers rate of pay if applicable.  

What is PAYE?

PAYE stands for ‘Pay As You Earn’ and is a HM Revenue and customs (HMRC) system to collect income tax and national insurance. PAYE contributions will be removed from a worker’s pay at regular intervals through the year, in order to avoid a worker paying a lump sum after every 12 months. 

To calculate how much each worker should pay, HMRC provide each worker with a tax code, which helps them calculate how much this worker should pay. The total amount to be deducted will depend on how many hours the employee works, how much they earn and their employment status. 

Tax codes are a representation of how much allowance an individual will get. For example, the code ‘1250L’ means the employee has a personal allowance of £12,500. Tax codes can be changed to make up for under payments of tax. 

How much tax does each wage bracket pay? 

If a worker earns up to a certain amount, their income will not be taxed. For the tax year 2020-2021, this is £12,500, so if a worker earns £70,000 per year, their first £12,500 will not be taxed. 

In England, Wales and Northern Ireland, any income earned is subject to the basic rate of taxation of 20% or a higher rate of 40% or the additional rate of 45%. 

See below the current tax brackets:

Basic rate

£12,501 to £50,000

20%

Higher rate

£50,001 to £150,000

40%

Additional rate

over £150,000

45%

To summarise: if you earn £70,000, the first £12,500 is tax free, £37,500 is taxed at 20% and the remaining £20,000 is taxed at 40%.

What is a P60?

This is a form that breaks down how much tax a worker has paid from their gross salary in the past twelve months. If the worker is working for an employer, their employer Is legally bound to supply them with a P60 by the 31st of May. 

P60 forms are necessary for a worker to prove their income. Workers may need this when they are trying to get a mortgage of reclaim overpaid tax. 

Work Benefits

Workers are not guaranteed some benefits by law, unless they are in a contract of employment, and they are at the discretion of the employer. 

Some benefits may include:

·      Childcare

·      Cash bonuses

·      Gym membership

·      Mobile phones

·      Laptop/Computer

What benefits am I guaranteed by law?

Statutory leave

Under UK law, workers must be given a minimum of 5.6 weeks of statutory leave each year. If an individual works full-time and a typical five-day week, they are entitled to 28 days of statutory leave per year. However, if an individual works a different amount of days, you should multiply the number of days worked in an average week by 5.7 to determine a worker’s statutory leave per year. 

Workers will receive the same amount of pay whilst on statutory leave that they would usually get within the same period of time. 

A worker’s entitlement to leave begins to build up from their start date of their job. Some employers will dedicate a leave year, in which there is a twelve-month period in which statutory leave may be taken, however if this is not specified it will start on the first day of the workers job. Workers will continue to accrue statutory leave if they are on maternity/paternity leave, adoption leave or sick leave. 

If workers do not take all of your statutory leave in the twelve-month period, then by law an employer must allow the worker to carry over up to 8 days of their 28 day entitlement into the next leave year, or up to 20 if the worker were off sick and unable to take it in the normal way.

Pensions

If an employer hires at least one member of eligible staff, they are obliged to set up a workplace pension scheme. This process is called ‘Automatic Enrolment’

This is outlined in the Pensions Act 2008, which can be found here.

Eligible workers are those aged between 22 and the state pension age, earn over £10,000 per year, work in the UK and do not already pay into a workplace pension scheme. Once eligible workers are enrolled, they can pay into the pension scheme each month. However, workers have the right to opt out of the scheme at any time.

This contribution will be supplemented by employer contributions and in some circumstances the government. The total amount paid into the scheme per month must make 8% of the workers monthly salary. Employers must legally pay at least 3% of an employee’s gross monthly salary into the workers’ pension scheme and the worker must pay the remaining 5%. 

Employers should notify their workers of the date they were added to the pension scheme, the name of the body facilitating, how much the worker will contribute and how they may opt to leave. Employers can find more information concerning their obligations here.