18.1 Compensation
In the United Kingdom it is imperative to remember in order to provide legal employment, you must meet the National Minimum Wage, which is usually worked out on an hourly rate. It applies to all employees, including those that are paid on a monthly or weekly basis. In order for an employee to get their minimum wage, however it is worked out, they need to work the equivalent of the hourly rate to quality. There are numerous ways to check to ensure a worker is getting the National Minimum
Wage based on whether they are:
-Hourly paid, referred to as time work. Annual salary, basic number of hours per year referred to as salaried hours
-Paid by piece, paid based on the number of things they complete or make, referred to as output work.
-Paid in another way, referred to as unmeasured work.
You can get the National Minimum Wage by using the online calculator provided by Gov.uk at https://www.gov.uk/am-i-getting-minimum-wage
18.2 Working time
Working time is for any type of work and includes when time is spent:
-At work or required to be at work or even on standby near work in case needed.
-When the employee cannot work due to the machinery being offline.
-Standing in line waiting to collect any goods to help them get their job started.
-Travelling for work, such as moving from one client to another.
-When they are having training or travelling to that training.
Working time does not include:
-Travelling to the office and home again. Sick leave, holidays, maternity leave, or lunch breaks.
-Industrial action.
-Not working at work when they are given time off to rest. This is when you provide the employee with a place where they can go and relax or sleep.
Examples
A worker has two appointments in the morning without taking any breaks. They must be paid a minimum wage for the time at the appointments along with any travelling time taken between the two appointments. An employee has two appointments, spread out with one in the morning and one later in the day. After the first appointment, they head home to have a bit of a break and some lunch before heading to the next appointment.
The time they spent travelling from the appointment and then on to the second appointment is not to be included in the minimum wage allocation. If the same employee took a break between appointments but didn't go home, then their travel would be paid for, but not the break that they took between appointments. Working by the hour Any employee who works by the hour must be paid the National Minimum Wage, which is worked out over a set period based on when the pay packets cover. A worker who is paid monthly will have a pay packet for one month.
Annual Salary
An employee who is paid based on an annual salary will be paid based on:
-The basic hours stipulated in their annual contract
-The salary will be broken down into monthly or weekly payments.
-An employee who is paid an annual salary may not have their hours showing as an annual figure. It is more likely these will be a weekly or monthly figure that they can understand and relate to. This also helps ensure that the National Minimum Wage is being adhered to.
Remember that an employee must be 25 or over in order for them to be eligible for the National Living Wage.
Working out an hourly rate
Identify the annual hours based on the employee's contract. Divide the number of times they are paid each year, so 12 if they are paid monthly. This will give you the average hours per pay packet. Divide the amount each pay packet includes against the number of hours to identify the hourly rate and ensure it meets legal requirements.
Paid per task
In some instances, you may have employees who are paid based on each task they perform. This is often referred to as piece work or output work. They also should be paid a minimum hourly wage for each hour completed or a fair rate based on each task completed. This type of compensation is usually used in very limited situations.
Fair rate
A fair rate is the amount which enables the employee to get the minimum wage per hour. This can be determined by identifying the average rate of work completed each hour, so basically how many tasks are completed. This must be divided by 1.2 and then the hourly minimum wage rate must be divided by that number which will provide you with a fair rate per task completed.
Average rate per hour
It is important that you ensure your employees are being paid a fair rate. In order to identify their rate of work per hour, you can follow these simple steps:
Test all the employees to identify how many pieces they complete in an average hour. This must then be divided by the number of workers to get an average rate. In the event the work changes then another test may be needed to identify the new rate.
Unmeasured work
Unmeasured work usually means being paid an agreed amount to complete a certain task. This may be £500 to put up a wall, no matter how long it takes. In order to work out the minimum wage for this unmeasured work, you need to:
-Record hours worked
-Create an agreed average hours for each day before the project starts
Agreed hours
Agreed hours is when an employee and employer will agree on the average hours that the employee will work each day. The agreement can be for a number of periods without changing the hours. An example is if the employee is paid on a weekly basis.
Any agreed hours must:
-Be in writing
-Made before the start of the reference period
-Identify number of hours worked per day on average
It is important to keep in mind that you need to prove that the hours worked are a realistic average.
FACT
Energy recruiters Spencer Ogden have a glitzy way to spice up their work, offering top staff a chance to swan off to their beach office in Ibiza. If staff meet targets for three months in a row they are sent to 'work' on the beach office there.
Source: huf ingtonpost.co.uk
18.3 Employee benefits
Benefits are a fantastic way to attract top applicants to your company and to retain staff now and moving forward. Simply offing a minimum hourly wage is not enough to ensure employee loyalty moving forward. These days, companies need to think outside the box, provide a host of benefits to help reduce the risk of staff turnover, and ensure that they remain appealing to potential applicants in the future.
Pension
Everyone knows that many companies started offering pension plans to long term employees since 2012 due to the diminishing state pension in the United Kingdom. A pension is an opportunity to set some of the employee's income to one side for their retirement. There are a number of options available, many of which are contribution pensions.
Contribution pensions are when both the employee and the employer put money into the pension account. This means that by the time the employee retires, they will get a large sum of cash, half of which they have contributed and the rest is from their employer. The next type of pension offered is a benefit pension which is not used as much, as it requires the employee being paid out based on a formula relating to how long they have been at the company and their final salary.
Sick pay
There are employees who are entitled to wages which are payable after their first four days off sick. This is referred to as statutory sick pay (SSP) and protects them for up to six months off work due to illness or injury. Employers can offer more sick pay than this as a benefit to employees called occupational sick pay or OSP. This covers the employee for a longer period.
Income protection
Income protection is a benefit provided by some companies who will pay a percentage of the employee's monthly salary as regular income in the event that they cannot work due to illness or injury. This normally equates to up to 80% of their regular income. This is called group income protection and is when an employee has a medical condition which the employee may have prior to being added to the policy but is still covered. Income protection can be offered in a number of ways.
Often, this is payments which start only after six months of work, once the employee has exhausted their SSP and OSP. The payments will keep coming until the employee returns to work or reaches the age of retirement. There are certain policies which will only payout for a period of time, which can be up to five years, rather than
retirement.
Private medical insurance
Private medical insurance or PMI can be a way to attract employees covering the cost of private treatment in the event the employee has a medical problem. It is important to note that while this does not cover every single medical condition, it can help with pre-existing conditions and will pay for the cost of the income. PMI is also a tax benefit.
Dental and optician insurance
In the UK, everyone pays for dental care, unless exempt based on the requirements set out. The dental insurance plan is very similar to PMI: there are those that provide care for dental purposes only and then there are those which include visual issues as well. These provide the cost for private treatment, reducing the time the employee will spend off work having their teeth taken care of.
Critical illness insurance
Critical illness insurance or CII is when an employee gets a large sum of cash, completely tax-free if they are diagnosed with certain health conditions. The full list will be provided by the insurance company. In order to qualify, the employee needs to have one or more of the conditions on the list and they need to survive for up to 28 days after diagnosis in order to receive payment.
Health screening
This provides employees with a regular health check which includes a physical exam to identify any potential illnesses or diseases. It also provides them with insight on how to improve their life moving forward.
Life insurance
Life insurance is an insurance policy which pays out in the event of an employee's death. Many people take out their own policies to protect their families should they pass on, but the company can provide them with a policy which will take care of their family financially. This is often calculated based on their salary.
Share schemes
There are numerous share schemes provided by companies as employee benefits. Share schemes are when an employer gives an employee shares in the company which they can claim when they reach a certain number of years of service. This is a motivational tool and helps employees have a share in what they are working towards.
Car allowance
Car allowances are a common benefit provided by employers which gives employees an extra payment to help them get a good quality car that they can use for work. This is often provided for employees who travel for work purposes and may include a mileage allowance or giving them a company car to use.
Gym membership
In some instances, employers provide employees with free gym membership as one of their benefits or discounted rates at the local gym to promote health and wellness.
18.4 Leave
All employees are entitled to 5.6 weeks of paid holiday per year. This is referred to as statutory leave entitlement, also known as annual leave. An employer is allowed to include bank holidays into the annual leave.
Five day a week employees
Employees who work five days a week must be given a full 28 days of paid leave each and everyyear. This is based on them working a full five days by their 5.6 week entitlement.
Part time employees
Employees who work part time are also entitled to 5.6 weeks of paid leave each year, but this may be a little harder to work out and will be paid based on how much they have worked. An example would be an employee working for three days a week so you will multiply three by 5.6 to give you 16.8 days of paid leave for the year that they are entitled to.
Limits
Statutory paid holidays are limited to 28 days. Employees who work six days a week will only be entitled to 28 days of paid leave.
Bank holidays
Bank holidays do not have to be given to employees as paid leave, but some employers do choose to include bank holidays into their statutory leave.
Additional leave
There is nothing stopping an employer deciding to provide employees with more leave than the average legal requirements. Employees don't have to stick to the statutory leave and are entitled to provide employees with additional leave.
Aspects of holiday entitlements
Employees all have a right:
-To get paid for their leave
-To build up holiday entitlements during their maternity, adoption, and paternity leave
-To build up entitlements when they are off work sick
-To choose to take holidays in conjunction with their sick leave.
Calculating leave entitlement
Annual leave accrues from when an employee first starts at a new position. Leave year The leave year is based on when the company works out the leave. It is your responsibility to know how the company works their statutory leave year. For example, this may run from 1 January through to 31 December of each year. It is compulsory that all employees take their leave during this period, as it cannot be carried over.
In the event the leave year is not identified in the employment contract, then it will start as follows:
-The first day of the new position, if the employee started after the 1 October 1998
-On the 1 October each year, if the employee started work before 1 October 1998
18.5 Entitlement with new position
When an employee starts a new job part of the way through the leave year, then they will be entitled to part of their total leave for the current year. This will be determined by how much of the year is left.
Accrual system
The employer must use an accrual system to identify the employee's leave for the first year in their employment. This system will ensure the employee gets a twelfth of their leave each month worked. This means by the third month, they will be entitled to a quarter of their total leave. So they will be entitled to seven days of their total 28 days if working five days a week.
Carrying any leave over
Companies normally try to stop employees from carrying over their leave to the following year, though in some positions this cannot be avoided. The employment contract should identify how many of the employee's leave days they can take with them over to the next year and how many they must take during the course of this particular leave year. A company can decide that an employee who is entitled to 28 days of leave each year can take up to eight of those days through to the next year. In the event that an employee was off sick and therefore was unable to take their leave, the employer must legally allow them to carry up to 20 days of their 28 days over to the following year.
Booking time
Every company will have their own rules and regulations on how employees must go about booking time off. The general rule is that an employee must give at least two days' notice to take one day off, unless their contract stipulates something else. An employer does have the right to refuse leave if they feel they have not been provided with enough
notice. Employers can also refuse leave at a certain time, for example an employer can refuse employees leave over holiday periods due to them relying on holiday trade and needing all employees on board and working at the time.
Half days
Employees are also entitled to take part of their day off. How this is done will be determined by the company. When can employees not take leave?
Employees will be advised on the company's rules regarding leave, such as:
-Employees cannot take leave over bank holidays, summer holidays, or Christmas
-Leave can be restricted during certain busy periods.
18.6 Overtime
Any employee who works normal hours will be expected to receive overtime if they exceed these hours. This means an employee working eight hours a day, five days a week will have those as their normal fixed hours, and anything over that should be considered as overtime. It is important to note that an employer is not obligated to pay overtime, but at the same time, their rate of pay per hour must never fall to below the minimum wage requirement. Overtime must be clearly stated in the employment contract.
Compulsory overtime
An employee doesn't have to work overtime unless it stipulates it in their contract. You cannot force any employee to work in excess of 48 hours per week. In the event an employee agrees to longer hours, this must be in writing and signed by both parties. In the event the employee contract does not guarantee overtime, the employer does have the ability to stop them from working the longer hours accordingly.
Part time employees
Part time workers should never be treated differently from full time staff members. They are not inferior so they will often be paid overtime, as long as it stipulates this in their employment contracts:
Overtime should be paid if the employee works hours longer than agreed in their contract. They work longer hours than their normal working hours and for time that a full time staff member would get overtime for. They are working late at night, something full time employees would normally get paid more for.
Time off in lieu
In some instances, you are allowed to give employees time off in lieu of their overtime. This must be
agreed in advance between the employer and the employee.
18.7 Insurance
Companies need to have adequate insurances in place to ensure that their employees are protected in the event that they are injured or get sick as a result of their working environment.
Employers' liability insurance
Employers' liability insurance is compulsory for every single company in the United Kingdom from the day you hire your very first employee. This insurance protects employees in the event that they fall or injure themselves while at work. It is important that your insurance certificate is displayed in a prominent position where it can be seen by all employees. In the event that you are a limited company with one employee who owns 50 percent or more of the share capital, then you won't need this insurance.
Sole traders who do not hire anyone or only hire a family member are also exempt from having to have this insurance in place. If you hire employees on a temporary basis or for seasonal work, then you have to have employers' liability insurance in place. In the event that you do not have suitable employers' liability insurance in place, you can be fined up to £2,500 per day. The health and safety of the employees is something that you need to focus on to ensure that they have the best working environment to provide the company with the productivity that they expect and deserve.
Employers' liability insurance provides the minimum amount of protection for an employer in the event an employee injuries themselves at work. What is it?
Employers' liability insurance was introduced under the Employees Liability Act 1969 (Compulsoryinsurance).
This act requires all employers to provide a minimum level of insurance to cover claims by employees who are injured at work. What does it cover?
Employers' liability insurance protects the company and business owners against claims from employees. This may be illness or injury which takes place on the business premises as a direct result of the work they are carrying out. This insurance may not cover driving accidents, which are often covered by the motor insurance policy held by the company.
Employee travel insurance
This type of insurance protects employees who travel overseas for business. It ensures that they are covered in the event of an emergency, including protecting their money, computer, and luggage.
Module summary
This module provided you with in-depth knowledge on compensation and benefits, what is allowed, and what is not allowed. You also learned about annual leave and what is acceptable and not. Further, this module provided you with valuable insight on overtime, along with what insurance the company should have in place to ensure employee protection at all times.
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