UK Payslips: all you need to know about legislation changes to come into effect in April

From 6 April 2019, new legislation - known as the Employment Rights Act 1996 (Itemised Pay Statement) (Amendment) (No.2) Order 2018 - will come into effect. The new law will bring a number of changes to how employers have to deliver payslips to every worker on their payroll, including contractors, freelancers and other types of non-employee workers.

Kareena Prescott, MD of Eden HR Legal, explains in detail all you need to know about those changes in this guest blog post:

Payslips

Scope of this article

This article considers the right to be given a written, itemised pay statement, including the mandatory particulars that must be included in the statement, eligibility requirements, remedies for breach and the overlap with other statutory rights such as unlawful deduction from wages and unfair dismissal claims.

Right to an itemised pay statement

An employee has the right to be given a written, itemised pay statement by their employer. This must be provided at or before the time when any payment of wages or salary is made. (Section 8(1), Employment Rights Act 1996 (ERA 1996).)

Are electronic payslips compliant?

It is becoming more common for employers to provide pay information electronically. This raises the question whether electronic payslips are “given” and “written” for the purposes of section 8 of ERA 1996.

Where the employer chooses to provide payslips online, they should remember that the obligation is to give the statement on or before payday. Therefore, if there were any technical problems and payslips were not available online until after payday the employer would technically be in breach.

A further question arises as to whether simply making statements available online (for example, through a portal which employees need to log on to using a password) satisfies the apparent obligation on the employer to ensure that the employee receives their pay statement. Clearly the legislation envisaged printed copies being physically given to employees as it pre-dates the technical ability to provide information online. HMRC seems to take a pragmatic approach to the provision of online payslips. However, the argument is untested in the English courts, and the cautious employer would therefore be advised to email employees each month confirming payment and either attaching their payslip as an electronic document or informing them that their payslip is ready to view via a portal, with the link to it.

It is therefore important that employers consider the needs of absent staff, such as those who are off sick or on maternity leave who may not be able to get online to access their payslips. Employers may still need to provide printed copies of payslips to these individuals to ensure compliance with section 8.

What particulars must an itemised pay statement contain?

Itemised pay statements must include the following information:

• The gross amount of wages or salary.
• The amounts of any variable and any fixed, deductions from that gross amount and the purposes for which they are made (subject to the ability to provide a statement of fixed deductions instead).
• The net amount of wages or salary.
• Where different parts of the net amount are paid in different ways, the amount and method of each part-payment.

(Section 8(2), ERA 1996.)

There is no definition of “wages” or “salary” in section 8. It would appear that payments in lieu of notice, and tips and gratuities are not waging for these purposes.

BEIS has produced guidance which identifies which particulars must be contained in an itemised pay statement. It provides employers and workers with illustrative case studies to help determine what is required in different scenarios.

Hourly rates: from 6 April 2019

With effect from 6 April 2019, section 8 of ERA 1996 is amended by the Employment Rights Act 1996 (Itemised Pay Statement) (Amendment) Order 2018 (SI 2018/147) so that payslips will also need to itemise the number of hours paid for where a worker is paid on an hourly rate basis.  The number of hours must be given as either a single aggregate figure or as separate figures for different types of work (or rates of pay).

This change is in response to the Taylor Review of Modern Working Practices.

While the legislation specifies the mandatory requirements, payslips commonly contain other information such as the employee’s National Insurance number and tax code, their rate of pay, and the total amount of pay and deductions so far in the tax year. There is no statutory maximum amount of information which can be included and employers often also use payslips as a practical way to communicate with employees about other workplace matters or to publicise issues relevant to the workforce.

Variable deductions

An overpayment recovered by way of a deduction to wages is one example of a variable deduction. The EAT in Ridge v HM Land Registry UKEAT/0098/10 confirmed that a deduction in these circumstances is required to be identified in an itemised pay statement under section 8 of ERA 1996.

Statement of fixed deductions

An employer does not have to give details of the fixed deductions it makes in each itemised statement if it has provided, in writing, a standing statement of fixed deductions at or before the date of the pay statement that:

• In relation to each deduction, states the amount of the deduction, the intervals at which it is made and the purpose for which it is made.
• Is effective at the date on which the section 8 pay statement is given.
• Ceases to be effective 12 months after the date of issue or re-issue.

(Section 9(1)-(2), ERA 1996.)

A standing statement of fixed deductions may be amended at any time (in respect of a new deduction, a change in the particulars or a cancellation of an existing deduction) by written notice to the employee (section 9(3), ERA 1996).

Where an employer gives a standing statement of fixed deductions it must, within 12 months and at intervals of not more than 12 months thereafter, re-issue the statement in a consolidated form, incorporating any amendments made under section 9(3) (section 9(4), ERA 1996).

Examples of fixed deductions which might be covered in a standing statement are trade union subscriptions, sports club membership fees and season ticket loan repayments.

Eligibility

Employees (with some exclusions)

There is no qualifying period in respect of the entitlement to an itemised pay statement; it is a day 1 right. However, only employees are currently entitled to receive a pay statement (with some limited exceptions). The following employees are excluded and so employers do not legally have to provide payslips to them:

• Members of the police service.
• A merchant seaman.
• A master or crew member working in share fishing (paid by a share in the profits or gross earnings of a fishing vessel).

Workers: from 6 April 2019

A report published by Middlesex University in June 2017 suggested that 1 in 12 workers in the UK do not receive payslips.

In response to the Taylor Review of Working Practices, with effect from 6 April 2019 all workers (including agency workers and zero hours workers) will be entitled to itemised payslips under the Employment Rights Act 1996 (Itemised Pay Statement) (Amendment) (No 2) Order 2018 (SI 2018/529) in the same way as employees (and sections 8, 9, 11 and 12 of ERA 1996 will be amended to that effect). Following that date, only the genuinely self-employed will not be entitled to receive an itemised payslip.

Salary sacrifice

Salary sacrifice schemes are popular due to the tax and NICs advantages for both employer and employee. The legal basis of such schemes involves a permanent variation of the employment contract so that the employee gives up or “sacrifices” remuneration in exchange for additional non-cash benefits. Where such a scheme is being implemented it is therefore important for the employer to ensure that payslips accurately reflect the new agreed salary as this will be important evidence when seeking to persuade HMRC that such a scheme is valid. However, it is still possible to include a “shadow” or notional salary (that is, the pre-variation amount of remuneration) for the benefit of the employee. This may be important for example in respect of mortgage applications. HMRC has confirmed that the use of shadow salaries does not invalidate the salary sacrifice, provided the employment contract has been effectively varied (HMRC: Employment Income Manual: EIM:42771: Salary sacrifice: conditions for successful salary sacrifice: implementation of contractual arrangements: reference or notional salary).

Remedies for failure to provide a payslip

Application for a reference

An employee (and with effect from 6 April 2019, a worker) may make a reference to an employment tribunal where their employer does not give them a statement at all, or gives them a statement which does not comply with the requirements of section 8 in some way (section 11(1), ERA 1996).

A reference may also be made by either party if a pay statement or statement of fixed deductions has been provided but there is a dispute about the particulars that should have been included in it (section 11(2), ERA 1996).

Subject to Acas early conciliation, such an application must be made within three months of the end of the relevant employment or within such further period as the tribunal considers reasonable where it is satisfied that it was not reasonably practicable for the application to be made within that period (section 11(4)).

An employment tribunal may then determine the particulars which should be included in order to comply with section 8. However, an employment tribunal cannot consider solely whether an amount included in the pay statement or standing statement of fixed deductions was accurate (section 11(3)). If the tribunal finds that an employee (or from 6 April 2019, a worker) has not received a pay statement or standing statement of fixed deductions, it must make a declaration to that effect (section 12(3)).

Monetary award

If a tribunal finds that any unrecorded deductions have been made during the 13 weeks immediately before the employee’s application to the tribunal for a reference, it may order the employer to pay compensation of up to the aggregate amount of those unrecorded deductions during the 13-week period (section 12(4), ERA 1996).

Relationship with other statutory rights 

Unlawful deduction from wages claims

All workers have the right not to suffer any unauthorised deductions from their wages (sections 13-27, ERA 1996) with no qualifying period. Clearly a claimant’s itemised payslips from their employer will be vital evidence in any such claim. Such a right may be enforced while the individual is still in employment so it is therefore preferable in many cases to bringing a claim for breach of contract in the employment tribunal which may only be done once employment has ended.

The distinction between an award for failure to provide an itemised pay statement and an award under the unlawful deductions regime is that an award for the latter under section 24 of ERA 1996 is in respect of an unauthorised deduction, whereas an award for the former under section 12(4) is for an unnotified deduction. Therefore, a deduction could be authorised, but still subject to a financial award if it has not been notified in an itemised pay slip (for example, a failure to show a deduction for PAYE and NICs). Where a deduction is both unauthorised and unnotified, the aggregate of the awards paid under the two sets of provisions must not exceed the amount of the deduction (section 26, ERA 1996).

Unfair dismissal

It seems likely 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.

An employee who brought proceedings against or complained that their employer had failed to provide them (or properly provide them) with an itemised pay statement could also potentially claim automatic unfair dismissal for asserting a statutory right (section 104, ERA 1996) if they were dismissed for that reason.

National minimum wage

In order to establish compliance with national minimum wage (NMW) legislation, employers must keep sufficient records in relation to the hours worked by, and the payments made to, workers (regulation 59(1), National Minimum Wage Regulations 2015 (SI 2015/621)). As a minimum, this should include details of a worker’s pay and records of time worked but may also cover more detailed records of the various elements that comprise total pay and details of any deductions made. Employers should already hold this information, in the light of their obligation under section 8 of ERA 1996 to provide itemised pay statements.

Hive360 Payroll Support:

Hive360's payroll services are fully compliant and has already applied all the changes above to its payslips.

What's more, transitioning your temp or permanent staff payroll to the Hive360’s Employment model is a simple and efficient process. We will manage all tax & NI calculations, expenses claims, ensure HMRC and RTI submissions are completed on time, ensure continual compliance against any legislative changes, and provide your employees with secure and encrypted GDPR compliant digital payslips.

Our expert payroll team provides telephone hot line support for any pay queries from your employees, acting as a seamless extension of your business.