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Payroll Processing - Employee's Pay

Deciding the right rate of pay


Employers look at what the job entails, what competitors are offering for similar work roles and the abundance or lack of in the relevant skills. For new businesses this process is more straightforward but for established employers, it is slightly more complex. Existing employees set a precedent with their pay rates and therefore creates less flexibility to agree a pay rate different from one already given to current payroll employees in the same or similar job roles. 


Established employers recruiting new payroll staff, does provide an opportunity to review pay rates generally. It is not always simple to stick to the rates currently being paid to existing employees, as external factors, such as shortages of skills in specific areas, can have an effect on rates of pay. Employers unaware of this issue can face difficulties in recruiting new employees, but may also suffer when current employees become attracted by higher rates of pay elsewhere.


An employer must decide where they want to position the business and the rates of pay being offered. To attract the best payroll employees, employers may wish to pay a ‘top of the market\' rate. At the other end of the scale, employers who are unwilling or unable to pay premium rates may have to compromise on the calibre of employees they recruit.


The law requires employers to pay a fair and equal rate of pay for equal jobs, regardless of who is doing them.  The National Minimum Wage is a standard minimum amount prescribed by law and is the lowest amount an employer is allowed to pay to any employee. There are three rates of the National Minimum Wage in force from 1st October 2009.


  • £5.80 per hour, for those aged 22 or more
  • £4.83 per hour, for those aged 18 – 21 inclusive


Apprentices aged 19 and above qualify for the National Minimum Wage after the first 12 months of their apprenticeship.  


  • £3.57 per hour for 16 and 17 year olds (above compulsory school leaving age)


16 and 17 year old apprentices are not entitled to this rate.


The minimum wage figures are reviewed and updated regularly by the government. Failure to pay the minimum rate is a criminal offence. 



What the Law says


There are key regulations that you should be familiar with, which lay down rules regarding how much you pay your workforce, as follows:-


  • National Minimum Wage – minimum rates you can pay your employees.
  • Equal Pay Act – states how men and women are to be paid an equal rate for the same and similar roles.
  • Part-time Workers Regulations – part-time workers doing the same or similar jobs as their full time colleagues should be paid the same rates based on the number of hours worked pro rata.
  • Fixed-term Regulations –fixed-term employees total pay package must be the equivalent to that paid to comparable permanent employees in monetary terms.
  • Employment Equality (Age) Regulations 2006 – discrimination on the grounds of age is unlawful.  Pay and benefits schemes, are potentially discriminatory on the grounds of age if based on the length of service. Limiting pay and/or benefits schemes to 5 years\' service would enable employers to operate fairly.  Reward schemes based on length of service of more than 5 years must be objectively justified. 


Under HM Revenue and Customs rules, employers have other legal duties regarding pay such as the deductions of tax and NI. These deductions must be paid directly to HM Revenue and Customs on behalf of the payroll employee.  The employer is then required to provide each employee with a written statement or payslip at the time of paying staff to indicate the gross pay, deductions of tax and National Insurance, fixed deductions (e.g. loan repayments or Trade Union subs) and net pay total.


Only in certain circumstances are employers entitled to make other deductions from pay:-


  • Where written authorisation from the employee has been given prior
  • If employee\'s contract of employment has a clause that allows the employer to make deductions
  • A Court order, e.g. an attachment of earnings order



Our advice to you.


An employee\'s pay rate is a term of employment which by law must be specified in the terms and conditions of the written statement of employment, given to employees within their first 2 months of starting.  When an employee receives a pay rise or is promoted or a change in role occurs, the pay rate may be renegotiated. 


Individual employees can undertake very different roles from one another and therefore require different pay rates. However, when a number of employees perform the same or similar roles, pay should be made on an equal terms.  To pay different rates to different people based on gender or employment status is discrimination and unlawful. There are some important age exceptions to this provision as described above.


Regularly review your rates of pay to help you attract and retain good payroll employees.  It will ensure that differences do not arise in the rates given to employees doing the same or similar jobs or highlight areas where this has occurred.  There are circumstances where differences in pay rates legitimately do occur, e.g. where an employee\'s job role demands a higher level of skill or competency.  In these instances, make sure you can justify the differences in pay. Reasons for pay differences must be objective, measurable and noted down, helping you avoid potential claims of discrimination. You must be able to demonstrate that the differences are due to reasons other than age or gender.


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About the Author

Scott Muller

Citylights Professional Payroll Solutions Ltd

Managing Director