PIXIE PAYROLL Blog

The cost of living crisis has seen a huge shock to people’s household finances in recent years and there are signs that wage growth has begun to help people manage better as they’re faced with bigger bills. But there will still be some who are struggling and so employers may find themselves having to respond to employees asking for a pay rise and in this month’s blog, we’ve got a few handy tips on how to deal with that.

Be open to the request

It is important to initially be open to the employee’s request for a pay rise – it’s important to remember that it might have come out of the blue for the employer but the employee is likely to have been stewing on it for many weeks and will be anxious. Don’t say ‘no’ immediately but reassure the employee they will be given the time to explain why they think they deserve a pay rise.

Avoid a stressful situation

Those weeks of stewing may have caused the employee to have built up a list of grievances and reasons as to why they don’t feel valued and airing them at this point might not be the most productive thing to do. So maybe plan for the initial meeting to be short – confirm the request will be given consideration and set a future meeting date to discuss it further so both parties have the time to prepare. Ensure the employee is clear about the expectations for the future meeting.

Do some benchmarking

It’s a good idea for employers to undertake regular benchmarking exercises to ensure they are paying their staff at a level comparable to their competitors. But if the employer has received a pay rise request, it’s worth just doing a quick salary comparison so they are armed with up to date information for the meeting.

Undertake a performance review

If the employee is requesting a pay rise, it is likely that they believe they have been performing well – perhaps undertaking additional responsibilities, working longer hours or generating income. But it would be good for the employer to look into this so they can be sure that any extra effort is appropriately rewarded. This is also important should another employee request a pay rise who perhaps hasn’t been working this hard and will allow for that situation to be managed appropriately.

Other options

Budget restrictions might mean that a pay rise isn’t possible but if the employer values the employee and the work they’ve been doing, there might be other ways to reward the employee. Flexible working might be something they are interested in or perhaps some additional holiday time. If business considerations allow it, could the employee be offered a shorter working week for the same salary?

Discussions about pay rises are always tricky and they can’t always have a positive outcome even if it’s what everyone wants. But by taking the request seriously, giving the employee the space to air their issues and explore options offers a great chance of a satisfactory conclusion.

Since my last blog post, the election has happened and we have a new government in place. Then last week, parliament returned and it was time for the King’s Speech when plans for new legislation is laid out before MPs.

While no announcements were made about wages apart from a commitment to remove the age bands for the minimum wage or taxation this time – that will have to wait until a budget-style statement later in the year – there was some detail about some new bills around employment rights.

Employment Rights Bill

I have written before about new legislation the last government introduced around employment rights, which you can read here and here but the new Employment Rights Bill will legislate for a number of new initiatives including:

• Banning certain zero hours contracts to ensure employees have reasonable notice of changes in shifts and that contracts will be based on the number of hours an employee normally work. The government believes this will ensure there is flexibility on both sides of the employee/employer relationship which isn’t there now.
• Banning ‘fire and rehire’ which is where an employer terminates the employment of an employee only to fill that role with new employees who they pay less.
• Ensuring all workers have an entitlement to parental leave, sick pay and protection from unfair dismissal from their first day.
• Allowing more employees to become entitled to Statutory Sick Pay.
• Making flexible working the default option from the first day of employment for all workers.
• Banning the dismissal of a woman who has just had a baby for six months after her return to work, except in some specific circumstances.
• Introducing a Fair Pay Agreement into the adult social care sector.
• Updating union legislation so it works better in today’s economy and resetting the relationship with trade unions.

Skills England Bill

This bill will aim to bring together employers, unions and both devolved and national governments to build a skilled workforce. The new Skills England body will cover apprenticeships right up to the highly specialised skills needed to grow new industries and will map the gaps in training across the country. It will also encompass the Growth & Skills levy to ensure the right sort of training is eligible for funding under the levy.

Draft Equality (Race and Disability) Bill

This draft bill will legislate so that there is the full right to equal pay for ethnic minorities and disabled people. It will also make it easier for people to bring claims for unequal pay or pay discrimination.

In addition, it will require larger employers to report on ethnicity and disability pay rates with the aim to close pay gaps and create a more equal society.

All of these bills will now begin their process through parliament and it is likely there will be some changes along the way but we’ll be monitoring progress to see how things develop in the coming months.

In last month’s blog, we took a look at an important piece of documentation related to employment called a P60 – which is an end of tax year summary of the income an employee has received and the tax paid. There is another vital piece of paper an employee might need – a P45. ‘Getting your P45’ has become a catchphrase for losing a job but is actually more often created when moving from one job to another.

What is a P45?

A P45 is the document that an employee receives from their employer when they leave a job. Unlike the P60, it is generated at any time of the tax year and shows the tax position at that point of the year. By law, the employer must give the employee a P45 when they leave.

What is it for?

The P45 is created in order that both the HMRC and the new employer knows how much income the person has received and how much tax and national insurance has been paid up to that point in the year.

It also has information about the tax code the employee is on so that when they are added to the new employer’s payroll scheme, they immediately pay the right amount of tax.

The P45 comes in three parts. The employee gives 2 parts to their new employer and they retain one part for their own records. A digital version is issued to HMRC electronically by the old employer which replaces the old paper version that used to have to be sent by post.

What happens if an employee doesn’t have a P45?

A new employee might not have a P45 for a number of reasons including if it is their first job or if the new job is their second job. It is also possible that their old employer hasn’t provided a P45 which although illegal does sometimes happen.

In this instance, adding the employee to the payroll scheme can be done but does mean a few more steps. The employee will need to complete a new starter checklist to provide information on things like student loan payments made, benefits received and whether they have any other jobs.

With that information, the new employer or their payroll provider like us at Pixie Payroll, will calculate the correct tax code so all should be correct by the first pay day.

We work with our clients’ employees’ P45s all the time so if you have any queries about the document or any other aspect of onboarding a new employee, just get in touch.

One of the important documents for employees that is generated at the end of the financial year in April is the P60. But we know that it’s easy to just file it without being really sure what it’s all about so this month, we’re going to decode your P60.

What is a P60?

P60 is actually just the name of the HMRC document; its full name is the End of Year Certificate. It is a summary of all the tax and NI that’s an employee as paid, as well as any statutory payments that might have been received.

An employee will receive a P60 for every job they have so for example, if someone has two part time jobs, they will receive two P60s and the amounts will need to be added together to get the full picture of all the deductions and payments in the tax year.

If an employee has changed jobs in the tax year, they will only receive one P60 and the amounts from the previous job will be recorded on the P60 in the ‘in previous employment’ boxes.

There are a couple of key dates for P60s each year. The first is 5^th April – all employees on the payroll on this date are due a P60. The second is 31^st May – this is the date by when those P60s should be done. Even if an employee moves to a new employer during April, their old employer will still need to give them their P60.

Why is it so important?

A P60 actually contains quite a lot of information that will be important elsewhere. If an employee needs to claim Universal Credit or apply for or renew tax credits, a P60 will be an important piece of paperwork that will need to be submitted.

If anyone applies for a refund of overpaid tax, a P60 is needed for that process too.

Similarly, if an employee is applying for a mortgage or a loan, a P60 can be used as proof of income although mortgage companies will generally require additional evidence such as payslips and copies of bank statements. 

It also allows the employee to check that their employer holds their details, such as NI number and tax code correctly so they are being deducted the correct amounts and those deductions are being applied to the correct account.

What about the self-employed?

If someone is entirely self-employed and doesn’t receive any income from working for someone else and being on their PAYE system, they won’t receive a P60.

But if someone does have paid employment, however small, they’ll receive a P60 and those amounts will need to be recorded on their self-assessment tax return for that tax year. If the tax return is done online and the NI number is recorded correctly, the employee will find their personal tax account will have been automatically updated with the P60 amounts.

What to do if an employee doesn’t have a P60?

If an employee hasn’t received a P60 by the end of May, they should ask their employer to provide one. But if that doesn’t happen, the same information that would be on the P60 can be found on their personal tax account and the details can be printed off from here if required.

Because we at Pixie Payroll work on high standard payroll software, the P60s for our clients are generated automatically and very soon after the end of the tax year. But if you need any help getting them done for your employees, just get in touch.