People Pay Issues

People Pay Issues

Over the last few months we have seen some significant developments on the three key People Pay issues: National Living Wage (“NLW”), Gender Pay Gap (“GPG”) reporting and Holiday Pay.

Director, Payroll Advisory Services

KPMG in the UK

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People Pay Issues

In a snapshot

1) NLW - The Government's new mandatory NLW came into force on 1 April 2016. Employers will need to ensure that workers are being paid the correct rate. Penalties for non-compliance will be enforced as strongly as the current National Minimum Wage ("NMW") and offenders will be publically “named and shamed”. Penalties for non-payment will be 200% of the amount owed up to a maximum of £20,000 per worker.

2) GPG – On 12 February 2016, the Government published the draft Equality Act (Gender Pay Gap Information) Regulations 2016. The draft regulations are expected to come into force from October 2016, with first annual report due no later than April 2018 based on pay data from now to April 2017. Employers may be publically “named and shamed” if they do not comply and civil or criminal penalties may also be considered.

3) Holiday Pay – On 22 February 2016, the Employment Appeal Tribunal (“EAT”) provided binding authority in the case of Lock v British Gas that commission should be included in the calculation of statutory holiday pay. This decision, although helpful, leaves many questions open, in particular around what the appropriate reference period should be for calculating holiday pay for workers who earn commission. We understand that British Gas has sought leave to appeal the decision to the Court of Appeal so there may be further legal review. 

Key risks

These three People Pay changes bring significant risks for employers from a compliance, governance and transformation perspective.  Five key risks which should be considered are:

1) Reputational damage from adverse publicity

2) Penalties, increased risk rating and ‘naming and shaming’

3) Unknown workforce cost projections 

4) Decreasing employee engagement due to pay errors

5) Business lacking accurate management information 

Action plan and future strategy

The first step to ensuring these changes are dealt with effectively and in line with broader business strategy is to understand and quantify your HR and payroll data. This allows evidence based options as to how to manage potential costs and mitigate the key risks across the organisation.

These evidence based decision may then form a solid foundation for potential:

  1. Strategy decisions to reduce future compliance risks in relation to employee remuneration
  2. Quantification and modelling exercise to understand either future or potentially historic costs
  3. Payroll and HR system and process reconfiguration and change.

Acting now to ensure you have a robust basis for any such decisions will help mitigate significant compliance, cost and reputational risks.  Our Payroll, Reward and Legal specialists are able to advise on these challenging People pay developments on a legally privileged basis where appropriate, so you can consider and address them confidentially without the risk of disclosure. Our experience in these areas plus our data analytics tool can help with developing the necessary responses to these People Pay challenges.

If you would like to find out more, or discuss how to prepare for these People Pay changes, speak to Eloise Knapton and Donna Sharp.

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