Auto-enrolment and National Living Wage: essential update for employers

1 March 2018

Changes to be aware of at the start of the new tax year:

Auto-enrolment (workplace pensions)

Contribution rates will increase with effect from the first payday in the new tax year (6 April) as set out below:

Employer’s Contribution Employee’s Contribution
Pre 6 April 2018 1% 1%
6 April 2018 to 5 April 2019 2% 3%

These are the minimum contributions and are applied usually to qualifying earnings, which are those earnings between the lower and upper earnings limits for National Insurance. In some cases, they are applied to pensionable pay, which is an amount defined by the rules of the pension scheme.

National Living Wage

The standard rate for those aged over 25 increases from £7.50 to £7.83. There are other rates as follows:

Year Over 25 21-24 18-20 Under 18 Apprentice
2017/18 £7.50 £7.05 £5.60 £4.05 £3.50
2018/19 £7.83 £7.38 £5.90 £4.20 £3.70

National Living Wage common errors

There have been some high-profile cases recently which have caused both financial and reputational damage to the companies involved. Please be aware of the following points:

  • If you use the apprentice rate, ensure that these employees are in fact on listed apprenticeship schemes or that workers are engaged under a contract of apprenticeship. Note also that apprentices older than 19 years of age must be moved onto the relevant age-related rate after the first year of their apprenticeship.
  • Don’t use overtime or premium rates in your calculation of NLW. The rate that counts is that before adding extra pay for overtime or shift working.
  • If you require your employees to attend early or stay late for training, if they need to put on protective clothing, be debriefed, go through security searches, etc. this time must also be paid at least at the NLW rate.
  • Mobile employees must be paid from the time they attend the first customer of the shift to the time they finish with the last customer.
  • Gratuities received from customers cannot be counted as pay.
  • Certain deductions are not allowed if they reduce the pay to a rate lower than NLW. These include deductions for company uniform, tools, safety clothing and the staff Christmas event. It is also not permitted for an employee to pay a third party for such items if this would have the effect of reducing their pay to below the NLW. This provision generally applies to any deductions for the employer’s benefit.

Other deductions, such as Income Tax, National Insurance, student loan repayments, and corrections for overpaid wages, are not affected by this rule. It is also allowable to deduct accommodation expenses where accommodation is provided with the job.

The National Living Wage is not as simple as it looks. If you have any employees who are paid at or slightly above the NLW rate why not give one of our payroll experts a call so that we can check that you not running any risks.

For further information about this topic, please contact me or speak to one of our accountants in Newcastle, Jarrow or Sunderland.

As one of the leading firms of accountants in the North East, with offices in Newcastle, Sunderland and Jarrow, we have the expertise to advise you on a wide range of tax related issues. If you would like to speak to one of our local experts, please contact us.