Pay: employer obligations
Understand your legal obligations as an employer when paying your staff
As an employer, you have a number of legal obligations when paying your staff.
This guide gives you an overview of your obligations on pay as an employer, which include:
- providing workers with an itemised pay statement
- complying with national minimum wage law
- making statutory payments, eg maternity, paternity, shared parental pay, adoption, sick and guarantee pay
- only making lawful deductions from wages
What counts as pay?
When paying a worker, what actually counts as pay
The following counts as pay:
- bonuses and commission
- holiday pay
- statutory payments, eg statutory sick, maternity, paternity, shared parental pay and adoption pay
- notice pay
Pay does not include:
- loans to the worker
- refunds for expenses
- redundancy payments
- tips paid directly to the worker
- employer contributions to a pension scheme
Issuing pay statements to employees
Itemised pay statements and penalties for not giving notice of variations in fixed deductions
As an employer you are legally obliged to give each employee a written itemised pay statement, usually known as a payslip or wage slip. You must issue it at, or before, the time you pay your employee.
This right to receive an itemised pay statement does not apply to:
- people you pay who are not employees, eg freelancers and contractors.
- certain other groups, including police and some people who work at sea
Pay statement: what you must include
An itemised pay statement must show:
- gross wages or salary before deductions
- any fixed deductions - and the reasons for taking them - or the total figure for fixed deductions when you have provided a separate standing statement of the details
- any variable deductions - and the reasons for taking them
- net wages or salary payable after deductions
- a breakdown of each part-payment - such as part by cheque, part in cash
Standing statements of fixed deductions
A pay statement does not have to include the amount and purpose of every separate fixed deduction every time.
However, if you don't issue a payslip that does this, you must give the employee a standing written statement of fixed deductions at least once every 12 months.
This must state for each item deducted:
- the amount
- the intervals at which the deduction is made
- the purpose or description, eg trade union subscription
You must give the employee this statement at, or before, the time of issuing any pay statement which quotes the total figure of fixed deductions.
Variations in fixed deductions
If there is any change to an employee's fixed deductions, you must give them either:
- notification in writing of the details of the change
- an amended standing statement of fixed deductions, which is then valid for up to 12 months
If a dispute occurs in the workplace between you and your employee, you may wish to seek advice and assistance from the Labour Relations Agency (LRA). The LRA may be able to help with resolving disputes before they escalate into a tribunal claim.
Tribunal claims in relation to pay statements
An employee may complain to an industrial tribunal where you have:
- Failed to give them any kind of pay statement.
- Not included all the required details in an itemised pay statement or standing statement of fixed deductions. As an employer, you can also apply to a tribunal for a decision on what should be included in a pay statement or standing statement.
- Dismissed them for seeking to enforce a right in relation to a pay statement. This right applies regardless of the employee's length of service.
Employees must make their complaint while employed by you or within three months of leaving your employment.
An industrial tribunal cannot deal with a question that is only about the accuracy of an amount in a statement.
Compensation for claims in relation to pay statements
A tribunal may award an employee compensation at its discretion if it finds that you made un-notified deductions of pay, ie deductions that did not appear on a pay statement or a standing statement.
The discretionary amount awarded will not exceed the total of the un-notified deductions during the 13 weeks immediately before the date the employee made their application to the tribunal.
All un-notified deductions enter into this calculation, whether or not they were made in breach of a contract of employment.
The LRA provides an alternative to the Industrial Tribunal under the Labour Relations Agency Arbitration Scheme. Under the Scheme claimants and respondents can choose to refer a claim to an arbitrator to decide instead of going to a tribunal. The arbitrator's decision is binding as a matter of law and has the same effect as a tribunal.
Employee entitlement to statutory payments
An individual may be entitled to a statutory payment if they:
- become a parent, including through adoption
- are off work due to illness
- are laid-off
To qualify for statutory payments, the individual must be an employed earner, ie someone working for an employer who is liable to pay secondary Class 1 National Insurance contributions on their wages or salary.
Statutory pay for parents
To be eligible for statutory maternity, statutory paternity, statutory adoption or shared parental leave and pay, the individual must:
- meet certain qualifying criteria relating to minimum earnings, continuous employment and - in paternity and adoption cases - their relationship with the child and the biological mother/other adoptive parent
- comply with certain notification rules
Statutory sick pay
Under certain conditions, you may have to pay statutory sick pay to an employee.
This is the minimum level of payment you must make to someone who is off work through illness. Their contract with you may also entitle them to more than this.
Statutory payments: further information
Find out more about qualifying for:
- Statutory Maternity Pay and leave
- Statutory Adoption Pay and leave
- Statutory Paternity Pay and leave
- Statutory Sick Pay and leave
- Shared parental leave and pay
You can also call the HMRC Employer Helpline on Tel 0300 200 3200.
Guarantee pay: employee entitlement
What guarantee pay is and who is eligible for it
Under certain circumstances, you may have to pay your employees a guarantee payment if you cannot provide them with employment on a day when they would normally work for you under their contract of employment.
This is to compensate for the loss, through no fault of their own, of what they would have earned in normal circumstances.
Entitlement to guarantee pay
Individuals are entitled to guarantee pay if they meet the following conditions:
- they are an employee, ie they are working under a contract of employment - see employment status
- they are not an excluded employee, as defined below
- they have worked for at least one month's continuing employment up to the day before the one that guarantee payment is being claimed for
- they have normal working hours and are normally required to work in accordance with their contract of employment
- the day they claim for is not a day they were on holiday, were sick or not required to work under the contract of employment
- they must not have worked at all on what would be a normal working day (a day being the 24-hour period from midnight to midnight)
- the absence of work was not caused by industrial action, involving any of your other employees or employees working for your subsidiary or parent company
- the reason they did not work is because there was a recession in the employer's business or anything else disrupts the normal working of the employer's business, for example a natural disaster or failing power supply
- they have not unreasonably refused an offer from you of suitable alternative work - this can be work other than what they normally do
- they have complied with any reasonable requirements imposed by you to ensure their services are available
You do not have to pay guarantee pay to excluded employees. These are:
- masters and crew members involved in share fishing who are paid solely by a share in the profits or gross earnings of a fishing vessel
- members of the police service and armed forces
How to calculate guarantee pay
How to work out the amount of guarantee pay you must pay your staff and what the exceptions are
To calculate guarantee pay, multiply the number of hours your employee would normally have worked on the day in question (as stated in their terms and conditions of employment) by their hourly rate.
Statutory guarantee pay is subject to an upper limit of £30 per day. This amount changes every year. Statutory entitlement is limited to five days in any three-month period. This entitlement is reduced pro rata for employees who work fewer than five days a week.
You do not have to pay guarantee pay for voluntary overtime.
Exemptions from the statutory guarantee pay provisions
The Department for the Economy can grant an exemption from the statutory provisions if you have your own collective agreement. For this agreement to be valid, all parties to the agreement must be making the application for exemption, ie you and your employee, and the guarantee payment must be as favourable overall to your employees as the statutory provisions.
The agreement must also provide a complaints procedure that either includes a right to independent arbitration in the event of a deadlock, or specify that your employee may complain to an industrial tribunal - in which case the tribunal would have jurisdiction over the agreement.
The Employment Rights (NI Order) 1996 also provides for an exemption being granted by the Department of Agriculture, Environment & Rural Affairs (DAERA) where there is an Agricultural wages order under which employees to whom the order relates have a right to guaranteed remuneration.
You do not have to pay statutory guarantee pay on top of any contractual entitlement.
Employment protection rights
It is unlawful to dismiss an employee for seeking guarantee pay.
It is also unlawful not to pay guarantee pay to an employee if they are entitled to it.
In both of these cases, the employee can complain to an industrial tribunal.
The Labour Relations Agency (LRA) provides an alternative to the Industrial Tribunal under the Labour Relations Agency Arbitration Scheme. Under the Arbitration Scheme claimants and respondents can choose to refer a claim to an arbitrator to decide instead of going to a tribunal. The arbitrator's decision is binding as a matter of law and has the same effect as a tribunal.
Paying the National Minimum Wage and National Living Wage
You must ensure you pay your workers at least the National Minimum Wage or National Living Wage
Most workers who are above compulsory school age must be paid at least the National Minimum Wage or National Living Wage.
The rate you must pay varies depending on the worker's circumstances.
To find out how to calculate a worker's pay for the purpose of comparing it to the appropriate minimum wage rate, see National Minimum Wage and National Living Wage - calculating minimum wage pay.
Paying workers holiday pay
Employees' entitlement to paid annual leave
A worker is entitled to take at least 5.6 weeks' paid annual leave.
This is equivalent to, for example:
- 28 days for those who work five days a week
- 16.8 days for those who work 3 days a week
Bank and public holidays
The minimum paid annual leave entitlement can include bank and public holidays - the number of these vary across the UK.
Workers have no statutory right to take a day's leave on any bank or public holiday or to higher rates of pay if they work on such days.
You must set out in an employee's written statement of employment particulars their holiday entitlement, including arrangements for bank and public holidays, and holiday pay.
Carrying over annual leave
Workers must take at least four weeks' annual leave. Any additional leave may be carried over to the following leave year where this is agreed by you and your worker.
Payment in lieu of annual leave
The only time you can make a payment in lieu for any outstanding holiday is when a worker's employment ends.
Rates of holiday pay
The rate of holiday pay is generally the normal rate for the worker. So for those workers who are paid monthly, their annual salary is divided into 12 equal payments and when they take holiday it has no effect on their pay slip.
Case law has determined that guaranteed and non-guaranteed overtime should be considered when calculating a worker's statutory holiday pay. Further, the Court of Appeal in Northern Ireland determined that where voluntary overtime constitutes part of an employee's 'normal working week' - this also may need to be taken into account when calculating holiday pay.
You only have to work out a special payment where your workers have varying pay rates, such as piece work. In those cases, the holiday pay will be equal to the average rate over the 12 weeks before the holiday.
Any week in which no pay was due should be replaced by the last previous week in which pay was received to bring the total to twelve.
This only applies to the statutory holiday periods. If you offer extra leave over and above the 5.6 weeks (including bank and public holidays) the rate of pay for these can be whatever is agreed with your employees.
Rolled-up holiday pay
It is unlawful not to pay a worker while they are on holiday and instead include an amount for holiday pay in the hourly rate of pay - something known as 'rolled-up holiday pay'.
You must always pay a worker their normal pay while they are actually taking their leave.
No fixed hours
If your workers do casual work with no normal hours, for example, on a zero-hours contract, the holiday pay of each worker will be based on the average pay they got over the previous 12 weeks.
These should be weeks in which they were paid. If they were not paid in one of those 12 weeks, because they did not work, the last paid week before that should be used to calculate their holiday pay.
Making deductions from a worker's pay
Legally required deductions such as National Insurance and income tax
You must not make deductions from a worker's pay unless:
- they are legally authorised, eg PAYE (Pay As You Earn) income tax, National Insurance contributions, deductions from earnings orders, student loan repayments
- they are allowed by the worker's contract - workers must have a copy of the relevant contractual term or a written explanation before you make the deduction
- they have agreed to the deduction in writing before the deduction was made
You don't always have to meet these conditions, for example when:
- you make deductions to refund an overpayment of wages or expenses
- the worker is on strike
- the deduction is to satisfy a court order, eg to recover debts
Deductions for child maintenance
The Child Maintenance Service (CMS) of the Department for Communities (DfC) may ask you to make deductions from an employee's pay for child maintenance purposes. They may issue you with a deduction from earnings order and ask you to establish a regular pattern of payments. See how to make child maintenance deductions from an employee's pay.
Direct Earnings Attachments
As part of the Welfare Changes in Northern Ireland, you may now be asked as an employer to deduct benefit overpayments, including social fund loans, that an employee owes the Department for Communities (DfC) from their pay. Read more on Direct Earnings Attachments: making deductions from an employee's pay.
Deductions from the wages of retail workers
If your workers do retail work, you may make deductions from wages to recover cash shortages or stock deficiencies only if, in addition to meeting the above conditions, you:
- inform the worker, in writing, of the total shortfall you are recovering before you make the deduction
- issue a written demand on a pay day for the repayment
- make the deduction - or the first in a series - no sooner than their first pay day after telling them of the shortfall or, if you tell them on a pay day, not before that day
- do not deduct more than one tenth of the worker's gross pay on any given pay day - you can recover any remaining shortfall on future pay days (note that one tenth of gross pay does not apply when making the final payment on termination of employment)
- make the first deduction within 12 months of discovering the shortage
You should ensure that any deductions for shortages or stock deficiencies are not made unless you have conducted a thorough investigation to establish that the employee is liable for these. You should also take care when making any deductions not to breach minimum wage, as deductions must not reduce your employee's pay below the current minimum wage rate.
Direct Earnings Attachments: making deductions from an employee's salary
The Department for Communities will write to you if you need to make DEA deductions for an employee
Coronavirus (COVID-19): Direct Earnings Attachments (DEA)
Due to coronavirus the Department for Communities (DfC) wrote to employers in April 2020 to ask them to stop benefit debt repayments. If you have not yet stopped these deductions from your employee's salary, please do so as soon as possible.
DfC will now write to individuals who were previously repaying by deductions from salary giving them the opportunity to contact us to discuss voluntary repayment before DfC ask employers to restart deductions again.
No further deductions from earnings should be made unless you receive a letter from DfC asking you to do so.
Please note this has no impact on Direct Earnings Orders (DEO) in respect of deductions for Child Maintenance.
As part of welfare changes in Northern Ireland, you may now be asked as an employer to make deductions from an employee's salary in respect of monies owed by the employee to the Department for Communities (DfC). This method of recovery is known as a Direct Earnings Attachment or DEA.
The DfC Debt Management will write to you with an instruction to set up and maintain a DEA if any of your employees are affected.
How a DEA works
Any instruction you receive from the DfC will state the total amount to be recovered from the employee's salary. It is important to note that this is the total amount owed to the DfC and not a deduction amount which must be calculated as a percentage of net earnings. To operate the DEA, you will need to take the following steps:
- for each salary cycle, calculate how much to deduct from your employee's salary
- check if your employee has other debt orders to pay and if they take priority over a DEA
- advise your employee that money will be deducted from their salary in respect of monies owed to the DfC
- deduct the money from your employee's salary
- pay the money to DfC no later than the 19th day of the month following deduction in your payroll
- continue to make employee deductions and payments to the DfC until the total amount stated in the instruction has been repaid or the DfC tells you to stop
Record keeping for DEA
You must keep a record of deductions and tell the DfC when an employee leaves your company.
You could be fined up to £1000 if you don't make DEA deductions when requested to.
Employer help with DEA or payments
You can also call the employer helpline if you have questions about how to run a DEA or pay the DfC:
0800 587 1322 (Monday to Friday 9:00 to 17:00)
There are two deduction percentage rates which may be used for calculation - Standard Rate and Higher Rate.
The instruction from DfC Debt Management will let you know which of these rates to apply. The rate may change throughout the life of the DEA, from Standard to Higher and vice versa, and you will be notified of this by letter.
To calculate the deductions from your employee's salary, for each salary cycle you'll have to:
- work out the employee's earnings after tax, class 1 National Insurance and workplace pension contributions (net earnings)
- use the tables below (standard or higher) to establish the appropriate percentage deduction rate
- multiply the net earnings figure by the percentage rate to calculate the DEA amount
Note: if you are calculating a DEA based on a daily rate, you must also multiply the daily rate figure by the number of days in the pay period.
If payments are made every two or four weeks, calculate weekly pay and deduct the percentage in the table.
You should also check if the employee has other debt orders and if they take priority over a DEA.
If the total of all deductions is more than 40 per cent of the employee's net earnings, the DEA must be adjusted.
DEDUCTIONS FROM EARNINGS RATE
AMOUNT OF NET EARNINGS
(Net earnings are gross pay, less income tax, Class 1 National Insurance and superannuation contributions)
Deduction from Earnings Rate
Rate to apply (% of net earnings)
Deduction from Earnings Rate
Rate to apply (% of net earnings)
Up to £15
Up to £100
Up to £430
Between £15.01 and £23
Between £100.01 and £160
Between £430.01 and £690
Between £23.01 and £32
Between £160.01 and £220
Between £690.01 and £950
Between £32.01 and £39
Between £220.01 and £270
Between £950.01 and £1,160
Between £39.01 and £54
Between £270.01 and £375
Between £1,160.01 and £1,615
Between £54.01 and £75
Between £375.01 and £520
Between £1,615.01 and £2,240
£75.01 or more
£520.01 or more
£2,240.01 or more
What counts as earnings?
When calculating DEA payments, you should include as earnings:
- wages and salary
- overtime pay
- occupational pensions if paid with wages or salary
- compensation payments
- Statutory Sick Pay
- most other payments on top of wages
- pay in lieu of notice
- Statutory Maternity Pay
- Statutory Adoption Pay
- Ordinary or Additional Paternity Pay
- guaranteed minimum pension
- any money that the employee gets from the Government e.g. benefits, pensions or credits
- Statutory Redundancy Pay
Direct Earnings Attachment payment schedule
The supporting payment schedule that must be completed and issued in order to ensure that the correct payment is allocated to the correct debtor account
Coronavirus (COVID-19): Changes to Direct Earnings Attachments (DEA)
The Department for Communities is writing to employers to ask them to temporarily stop benefit debt repayments. You should not make any further Direct Earnings Attachments (DEA) deductions to your employees' salary until after the end of June 2020. You will be notified if this is to be extended.
Please note this has no impact on Direct Earnings Orders (DEO) in respect of deductions for Child Maintenance.
The Department for Communities (DfC) requires that a supporting payment schedule for Direct Earnings Attachment (DEA) be completed and issued in order to ensure that the correct payment is allocated to the correct debtor account.
DfC Debt Management has introduced an email route to receive payment schedules from employers, this is the preferred way for payment schedules to be sent.
For data security reasons the data required for the email payment schedule is slightly different to that on the paper schedule. By restricting the data recorded on the email payment schedule DfC Debt Management will still have enough information to correctly allocate payments to our customer records, whilst minimising the risk of personal data being fraudulently used should the email fall into the hands of a third party. Schedules do not need to be encrypted before emailing.
The postal route for sending payment schedules remains in place and a schedule template for use when forwarding schedules is available at appendix 2 of the DEA: a guide for employers (DOC, 767K).
Calculate final pay when a worker leaves
Deductions to make from outstanding pay owed when an employee leaves the business
When a worker leaves your employment, you must give them:
- any outstanding pay, including overtime
- pay in lieu for any untaken holiday
- bonus payments, if earned
- any statutory sick pay, if they are entitled to it
- pay instead of notice if you do not require them to work their notice period - note that the contract of employment must provide for this, otherwise the employee must agree to it
- redundancy payment, if due
If the worker leaves before or during their statutory maternity or adoption pay period, you must also start paying - or continue to pay - them statutory maternity or adoption pay.
You could also give them:
- a pension refund, depending on the rules of the scheme
- a lump-sum payment as compensation for loss of their job
- an enhanced redundancy payment if you have made them redundant - this might be either contractual or paid on a discretionary, and non-discriminatory, case-by-case basis
What you should deduct from a worker's final pay
You must deduct the following items from what you owe the worker:
- income tax
- relevant National Insurance contributions
You might also need to consider deductions in respect of matters such as:
- money given for season ticket loans
- any other outstanding loans
- amounts to be paid under any car leasing agreements