FAQ: April 2019 payslip changes; what do I need to know?
With effect from 6 April 2019, some important changes to payslip rules come into force.
It has long been the case that an employee is entitled to receive a written, itemised payslip, provided at or before the time when payment of wages or salary is made.
However, with effect from 6 April 2019, some important changes to payslip rules come into force. For employers with complex pay structures, implementing the new rules may be a sizeable task. We answer your most commonly asked questions below.
Q: Do we need to include any additional information on our pay slips?
From 6 April 2019, section 8 of the Employment Rights Act 1996 is amended by the Employment Rights Act 1996 (Itemised Pay Statement) (Amendment) Order 2018 so that payslips will also need to itemise the number of hours paid for where a worker is paid on an hourly rate basis.
Fixed hours do not need to be shown (although they can be shown if you choose). So, if an employee works the same number of hours every month, the total figure does not have to be broken down in any way. This is the case even if the amount received may vary between months (e.g. due to a seasonal supplement). The only hours that need to be broken down on the payslip are hours which are variable (e.g. overtime).
Q: Are there any new restrictions to the information we can include on payslips?
No. The new Regulations set out the minimum information that must be provided. There are no statutory limits on the amount of additional information you can provide if you wish. In fact, the more information you provide, the more likely it is that the payslip will be a useful point of reference for the recipient. If you currently use payslips as a method of communication to keep employees informed about workplace issues, you can continue to do so.
Q: Will any members of staff not currently entitled to a payslip become entitled to receive one?
Yes. Currently, only employees are legally entitled to receive an itemised pay slip. However, with effect from 6 April 2019, all workers (including zero-hours workers and agency workers) will also be entitled to receive itemised payslips in the same way as employees. Only the genuinely self-employed will not be entitled to receive an itemised payslip.
You may already provide payslips to the workers you engage as well as to your employees. However, if not, you must do so from 6 April onwards. To decide which members of staff have become entitled to a payslip under the new rules, you may have to make some difficult judgment calls about employment status, and whether an individual is likely to be an employee, a worker, or a self-employed contractor. The question of employment status also has other very important repercussions, such as entitlement to paid holiday and to the national minimum wage. If you need any help with employment status issues in your workforce, please do not hesitate to let us know.
Q: Do we have to make changes to past pay information?
No. The new Regulations do not have any ‘retrospective’ effect. This means that the new rules only apply to the pay period which includes the 6 April 2019 implementation date, and all subsequent pay periods. You do not need to look back and amend the information provided in previous pay periods and there is no obligation to provide more detailed pay slips retrospectively.
Q: We operate a very complex pay structure with multiple different hourly rates of pay, premiums and allowances. Do we have to detail every one of these separately?
Unfortunately, there is very little detailed information available on how these Regulations are intended to apply to complex pay arrangements (for example, where an employer operates a wide range of allowances and pay supplements).
The stated aim behind the legislation is to increase pay transparency by making it much clearer how many hours the individual is being paid for and how much they are being paid for those hours. In other words, an employee must be able to identify from their pay slip the actual time worked and the actual pay received.
As mentioned above, the only hours that need to be shown on the payslip are hours which are variable (e.g. overtime). There is no need to specify how many hours have been worked or how pay is made up (e.g. how much is referable to basic pay and how much to supplements etc.) as long as the individual can identify from their payslip how many variable hours they have worked in a given in pay period and how much they have been paid in total for those variable hours.
The ‘variable’ hours worked by the employee can either be shown as single aggregate figure OR broken down into different pay rates to increase transparency. Either option is permissible.
It appears that only a relatively light touch is required to comply with the Regulations. However, you can of course provide a more detailed breakdown of pay if you wish.
Q: What are the consequences if our payslips don’t comply with the new rules?
If you fail to provide a compliant payslip, the risk is primarily reputational rather than financial. An employment tribunal can make a determination about the particulars that should have been included in the pay statement. This may result in some adverse publicity, especially for larger organisations, which will be expected to get their systems ready in time.
Additionally, if it transpires that any unnotified deductions have been made during the 13 weeks prior to the application to the employment tribunal, then an employer may be ordered to pay compensation up to the aggregate amount of those deductions (section 12(4) ERA 1996). The term ‘unnotified deductions’ refers to any deductions which an employer is legally allowed to make, but which have not been properly noted on the payslip. This is different from the concept of an ‘unlawful deduction from wages’ which refers to any deductions which an employer was not legally authorised to make.
A deduction can be perfectly lawful (for example for PAYE or NICs) but still be subject to a financial award if the employee has not been properly notified.
Q: Are there any other employment tribunal claims a member of staff can bring if we fail to provide an itemised pay slip or provide an incomplete payslip?
It is possible that an employee (but not a worker) whose employer failed to provide them with itemised payslips would be able to resign and claim constructive dismissal (assuming they had the necessary length of service), given that pay is the most fundamental term of the employment contract from the individual's perspective and the statutory right to a payslip of great practical importance. However, obviously, resignation is a very drastic step and, hopefully, such cases will be rare.
Mandy Higgins (firstname.lastname@example.org) is a Partner in the Employment, Pensions and Immigration team at Weightmans LLP and is based in Liverpool. If you have any questions, please do not hesitate to contact Mandy or speak to your usual Weightmans advisor.