HR – Are your staff entitled to BACKPAY?

Based on a real case we are currently managing. Names, business details and terms have all been changed for privacy.

July 2015
Summer owns a Beauty Salon and employs 8 employees, all of whom are paid a basic hourly rate plus commission (based upon an individual’s sales). Summer is happy as they are good workers and she wants them to keep working for her.

The Background

She employs:
– Tracey (age 17), a trainee on a government apprenticeship scheme. She pays her £2.50 per hour working a minimum of 30 hours per week.
– Melanie (age 19), in the second year of her apprenticeship. She works a minimum of 30 hours a week and is paid £2.73 per hour. She queries this amount with Summer as her employer, but Summer insists this is the correct payment for an apprentice.
– Linda (a 16 year old school leaver) started working at the salon in June 2015, but will not start her apprenticeship at college until September. As Linda is not starting her apprenticeship until September, Summer has offered her a normal employment contract and age-related National Minimum Wage of £3.79 per hour from July to the end of August. She will then revert to the rate of £2.73 per hour when Linda starts her apprenticeship.

(In the meantime – Summer becomes unclear of Linda’s correct entitlement after a colleague said that she should pay Linda £2.73 from the date she started her employment, even though she has started working before her college training commences.)

– Kirsty (age 24) has been working at the Salon the longest and is paid an hourly rate of £6.10. She is always very busy with repeat customers and generates lots of business for the salon. She earns the most commission every month.

Summer also employs 3 other Beauticians and a Salon Manager.

The Facts

Summer should know:
•‘cash in hand’ and commission payments should be treated as wages
•these payments should be included when working out if the National Minimum Wage has been met and paid correctly, and included for Tax and National Insurance calculations as appropriate

Summer is not paying Tracey the National Minimum Wage.

Summer should know:
•the current minimum wage rate for an apprentice is £3.30 per hour
•this rate applies to apprentices aged 16 to 18, and those aged 19 or over who are in the first year of their apprenticeship
•a worker being new and building experience won’t mean they aren’t entitled to National Minimum Wage.

Summer is not paying Melanie the correct National Minimum Wage.

Summer should know:
•someone who has completed their first year of apprenticeship, and is over 19, should be paid the minimum wage rate for 19-year-olds, which is currently to £5.30 per hour

Summer is paying Linda correct National Minimum Wage.

Summer should know:
•if a normal employment contract is issued from the start of employment, the worker is entitled to the age-related National Minimum Wage from the start of their employment
•the worker is entitled to the apprenticeship rate for the period when the apprenticeship commences
•if she issues a contract of apprenticeship from the start of employment, the employee is entitled to the apprenticeship rate from the start of the arrangement.

Summer is paying Kirsty the National Minimum Wage.

Kirsty is paid £6.10 per hour basic salary plus her commission every month, she earns £8.00 per hour, which is above the National minimum wage for her age; £6.70 per hour.

The four other employees are also not paid the current minimum wage.

The Outcome

A number of the employees are very unhappy when they find out they are not being paid the minimum wage. They are owed a large amount of back pay which is very costly to Summer.

Summer had to pay large amounts of back pay to reimburse her team. She was also fined and named by the government publicly for failing to pay the minimum wage.

Summer was also contacted by a number of employees who historically worked for her, asking if they were owed any back pay.

Summer did not have up to date Contracts of Employment for her employees or a Company Handbook.

Employers have a legal obligation to pay the minimum wage to all their employees and also must give employees a ‘written statement of employment particulars’ (contract), if their employment contract lasts at least 1 month or more.

All businesses with employees should have up to date Employment Contracts in place and an Employee Handbook. An understandable, readily accessible set of policies helps ensure that employees are treated fairly and equally. Formally writing down your business’s policies and procedures and providing clear guidelines means you will spend less time answering questions and explaining the basic rules of your company. It will also protect you as a business from a situation such as this happening to you and ensure you comply with the latest employment legislation.

National Minimum Wage
•From 1st October 2015, the national minimum wage increased: •From £6.50 to £6.70 per hour for workers aged over 21
•From £2.73 to £3.30 per hour for apprentices
•The rates for 18-20 year olds increased from £5.13 to £5.30 an hour and 16-17 year olds from £3.79 to £3.87

•In February 2015 the government named 70 employers that failed to pay minimum wage
•The worst offender was a care provider in East Midlands, Crossroads, which owed £37,500 to 184 workers
•About 100 other cases in the care sector are still being investigated
•All 160 employers named face financial penalties as well as suffering reputational damage
•In the summer Budget the Chancellor revealed plans for a “national living wage”
•The national living wage (NLW) will apply form 1 April 2016 and be payable to workers aged over 25 and will replace the national minimum wage (NMW) for this group of workers
•Initially the NLW will be payable at the rate of £7.20 per hour.

If you’re worried this may affect you, or you would like to talk to us about any other HR related issues, give us a call on 01903 688789 or send us an email to makeithappen@mbsmih.com.

Our HR packages are extremely flexible and cover everything you could need. We offer a fixed fee retainer, can work with you to address one-off issues or on a project by project basis.

We can provide all of the legal documentation required for managing people and equip you with the necessary skills for all your HR challenges. We will work with you to help you structure your organisation with the right skills and capabilities in line with your desired business strategies.

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