ADP Payroll Around The World

Payroll in the United Kingdom

The United Kingdom is a crucial launchpad for international businesses, with a globally renowned financial sector and home to the world’s most widely used legal system. While this makes the U.K. an appealing destination for multinationals, payroll professionals must also be aware of the country’s complex minimum wage and holiday pay laws as well as rapidly changing regulations.

We’re joined by ADP experts Sirsha Haldar and Ben May as they guide us through common compliance pitfalls and U.K. payroll regulations in this episode of Payroll Around the World. We’ll cover how minimum wage in the United Kingdom isn’t just about paying someone the correct hourly amount, and how holiday pay can quickly become confusing for seasonal and part-time workers. We also speak to Roberto, a minimum-wage employee at a cinema in London who takes on various roles at his job, which leads to regularly switching between different pay categories.

Timestamps

Intro [00:06]
What’s unique about payroll in the U.K.? [05:19]
The U.K.’s labor market and its effects on payroll [06:37]
Introducing the National Minimum Wage [07:55]
Roberto’s story [12:43]
Penalties for miscalculating the minimum wage [17:58]
What is ADP doing to help clients stay compliant? [20:00]
Complexities around holiday pay calculations [20:45]
What do you love about working in payroll? [24:06]

Credits

Executive Producers for ADP: Nicola Smith and Kate Allen
Executive Producer for Storythings: Matt Locke
Recorded, edited, mixed and mastered by: Chris Mitchell
Scripted and hosted by: Luisa Rollenhagen
Guest interview recorded by: Hannah Dean
Project Manager: Aimee Perrinjaquet

Hosted on Acast. See acast.com/privacy for more information.

Duration:: 27m
Broadcast on:: 13 Sep 2024
Audio Format:: mp3

(upbeat music) - Hi, and welcome to another episode of "80P Payroll Around the World." I'm your host, Louisa Rolandhagen. Payroll Around the World is an audio series that explores the truly local side of payroll by taking you around the world one country at a time to talk to experts on the ground and find out what payroll there is really like. After all, payroll can only really be global when it's informed by local expertise. So we're going to explore what makes payroll unique in each country, get insight into the work culture, and hear from both payroll experts and locals will share their experiences with us. (upbeat music) Today, our journey takes us to the United Kingdom. It's a crucial launch pad for international businesses looking to explore the European market. Its financial sector is globally renowned and it's home to the world's most widely used legal system, giving the country a clear advantage when it comes to providing legal services for businesses. That's why 40% of global culprits see London as the preferred seat for international arbitration. But what does today's world of work and pay look like in the UK? - There is a lot of expectation around diversity, equity, inclusivity. That's a very, very important topic. The working hours is very important. This whole, you know, work from office versus work from home versus hybrid working, that's very important. And I think, you know, these are some of the changes that's coming. - There were the hot topics at the moment with the, there's been a big increase in the national minimum wage hourly rates to individuals. - That was a little preview from our two ADP experts for this episode, Sersha Holder and Ben May. They're both going to be giving us a deeper look into the challenges and intricacies of running payroll in the UK. As Ben already suggested, the national minimum wage in the UK is definitely going to be an issue that employers here need to be aware of because I just learned that it's way more complicated than we'll would think. But we'll get into that in just a moment. After the implementation of Brexit in 2020, many wondered how the UK's labor and business environment would adapt. But several years on, it's clear the country remains an attractive destination for multinationals looking to expand their business and gain a footing in European markets. - Yeah, I mean, UK has been very successful in, you know, probably past few decades and banking, insurance, anything to do with financial services, lot of innovations. I mean, if you look at the big innovative tech companies, they all have presence here, pretty big presence. I mean, UK in terms of education, the quality of education universities, UK is at the top of the chart, no doubt. So talent availability is very, very high. - But with more employees, come more responsibilities. Ben briefly teased that the minimum wage in the UK is trickier to navigate than it may initially seem. And that's because a job isn't just a job. In fact, in the UK, there's something called the standard occupational classification, which classifies jobs according to the level and skill needed to carry them out. Different jobs are paid differently. Some are paid by the hour, some are paid by completion of a task, and some receive a monthly salary. - So I have a zero hour contract to work as a usher and as a box office, the two different rates. - In some cases like Robertos, the person you just had, employees receive a zero hour contract, meaning that there's no minimum number of hours that someone is contracted for. So no matter by what metrics someone is paid, employers still need to ensure that they're paying the hourly minimum wage by calculating the equivalent hourly rate. But that's not all. The amount that corresponds to the minimum wage also changes depending on your age. I'm definitely not the expert here. But luckily, we've got two guests here today who could really help us dive into the nitty gritty of minimum wage in the UK, as well as many other topics that define work and pay in the country. Welcome, Sir Sean Ben. Would you mind introducing yourselves? - My name is Shir Shahlder, and I'm the general manager of Northern Europe for ADP. And my responsibility is across UK, Ireland, Netherlands and Sweden, that is Nordic markets. - So my name's Ben May. I'm the senior manager for payroll compliance in the UK. - Sir Shah has been with ADP for more than 24 years, and Ben started his ADP journey about seven years ago. Together, they've seen the UK go through many changes and have direct insight into how the country's labor market has developed and what multinationals need to know before setting up shop there. I'd like to start us off by asking you to what, in your opinion, makes managing payroll in the UK unique from other countries. - I think one thing that always springs to mind to me that's unique about payroll in the United Kingdom is our tax year. Our tax year all starts on the 6th of April, and it ends on the following 5th of April. And I think a lot of countries don't have that. It's quite a unique tax year. Most of the countries are kind of like the start on the 1st of January, and they end on the 31st of December. - I think UK payroll is in many way unique. On one way, it's not as complex as say France or Germany, or there are other countries where payroll is very, very complex. But again, it's not very simple. Like there are other countries where it's very simple. The way it works is the tax calculation, you get a tax code from HMRC, you constantly work with HMRC, you constantly report, constantly get feedback. I mean, that's pretty unique. - Every country has its own abbreviations for official institutions, and the UK is no exception. In this case, HMRC stands for His Majesty's Revenue and Customs, the His Being, of course, King Charles III. I was curious about how Ben and Sersha viewed the UK's current labor market and what impact it had on running payroll. So I asked them to give me their perspective. So there are a number of experiments going on, whether we should increase tax. I mean, there are places where there is more public spending required in healthcare, in transportation, in many other places. At the same time, whether this will result in higher tax, whether the country is in a position to take more tax at this point of time. So it's a challenging time, and it's not only UK, probably it's true everywhere, but I think UK probably is going through some of the adjustment. - Yeah, we've also been to like a cost of living crisis or am potentially still going to a cost of living crisis. And Sersha said, "Wait, what will that mean "will we see that get better, "or will the funding to the welfare, transportation, "other areas that really need funding "how will that impact employees' cost of living?" Speaking of cost of living and how it affects employees. Let's dive into the national minimum wage. Ben, you've mentioned that it's a tricky subject that can often trip up employers from abroad. The national minimum wage was raised in April 2024, and the age of eligibility has been dropped down to 21, as opposed to 25. What does someone who is not from the UK need to know? - I think we're the hot topics at the moment with the, there's been a big increase in the national minimum wage hourly rates to individuals. We see that now going from 25 times 21. So coming from abroad, we have, they have other terms nationally around minimum wage, but that means something different in every country. And I think when you've got a multinational coming into the UK, they quickly need to understand what that all means. Because as the saying goes, it's not just about the hourly rate that they're being paid. So they really need to dig into that. What does that mean for them? Yes, I can, I can pay some £11.44 an hour, but am I actually meeting my obligations? 'Cause there are other things that impact them in the wage calculation, that means they could potentially be at breach of a national minimum wage, and they need to understand that. - Can you break it down for us and explain what other things could impact the wage calculation? - So it sounds like it's really easy. Just make sure that you pay someone more than, more than the minimum wage, hourly wage rate. But it's so much more than that. You've got your different type of worker classes. You've got someone that's a time worker. That's just purely kind of hourly paid, probably. You've got someone that's a salaried worker. Normally that's defined in their contract that they probably work X amount of hours per week. And when you multiply that by 52, you get an annual amount of hours. You get paid 1/12 of that salary. Let's say you're monthly paid. You divide one by the other. You divide the hours in the period by your monthly salary. And that's normally that you're kind of hourly rate. All of the, you know, both of those two, they're quite complex pieces for employers to understand the full kind of national wage legislation. And employers need to be thinking about kind of, are they tracking all the hours that employees are working? That's even unpaid time. They need to be looking at kind of the various deductions they have got coming out of their salary. There's some things that count towards national wage, some things that are not. You know, there's always the things of being deducted for the employers' own use and benefit. There's lots of complexity around national wage. And I think this is where we were saying that it's not just the payroll department's responsibility. It's everyone's responsibility. - Okay, I can see how that can get complicated really quickly. And I'm sure all of these calculations are pretty challenging for payroll departments. - There was a poll recently around whose responsibility is national wage? Is it finance? Is it HR? Is it payroll? Someone else? You know, the poll everyone's gonna go, it's payroll's problem, right? Well, actually it's everyone's problem because it's even your manager's problem. Everyone needs to be aware of what's happening, you know? Am I requiring you to stay around for a security check after actually your time's finished? 'Cause I need you to stay around 15 minutes to a security check before you leave the building. Well, there's unpaid working time. That all accumulates. So if you've already got someone that's on the minimum wage already, you're in potential breach immediately. - So there are a lot of challenges, but it's important for a company who is coming here to make sure that they make arrangements so that they can stay focused on their core business and their other requirements are all taken care of. When they come here, what we always say is you don't want to get into trouble with your payroll because you came to this country to do some business that maybe, you know, whatever is your core business. And what you don't want is to get into some kind of tax or national insurance or minimum wage issues, right? So it's important that they get right kind of advisor who probably can help them set up their business here and make sure that they're set up properly when they're hiring, they're following all the local legislations, they're following the local practices. And also many of them actually try to find partners who can help them in like ADP. You know, we do that, we have been doing that for the last 75 years. - So we've heard a bit about what employers need to keep in mind when it comes to minimum wage regulations, but what's it like on the other side? In this series, we don't just share the invaluable local knowledge of ADP's experts and partners, but also speak to real people on the ground about their own lived experiences with work and pay. So let me introduce Roberto. He works at a cinema in London that's part of a larger French cultural institution. Roberto is a self-described cinephile and spends a lot of his non-working hours at the cinema as well. But when he's working, he ends up wearing many different hats. - My name is Roberto Jannell and I fulfill different roles over here from ushering, I work at the box office but as well I'm a film programmer. So I deal sometimes with the program, how to bring the films to the cinema. And I run a film club once per month when I introduce a classic to the public. And then after the film usually we hold a discussion on the library when people talk about the film and their impression and what they think about the film. - Working all of these different jobs, means that Roberto's employer needs to calculate the different wage rates that come with each role. - I have a zero hour contract to work as an usher and as a box office they're two different rates. And usually when I work for the film club that's a freelance job that they do for the institute. And periodically I work within the programming team and that could be like a three month contract with a different rate and the contract is based on the hours I'm gonna work on the project. - Keep in mind that all of this is for the same employer. And sometimes the lines between all of these different roles get blurred and additional work crops up. - When I introduce in the classics for my film club there's so much work on research they have to do and of course I do the extra mile because I want to be a more competent in the job than I'm doing so definitely there is. And of course when I'm here doing the film club I always feel like that I've got a bit of like ushering role or a box office role in the sense that like some customers they know me in their roles. So they tend to ask me questions. On the day when I'm introducing the film I'm not dealing with ushering roles or box office. - For my usher role is minimum wage and of course when a box office is paid a little bit more. And we actually had a raise because the minimum wage cashed up with the box office hours. - Remember when Ben told us that the minimum wage had been raised? Roberto's case really illustrates the ripple effect that this policy change has. His box office role pays more than minimum wage. So if minimum wage is raised then the other salaries are directly affected. And because his workplace is part of a French public institution the wage increase actually had to be approved in conjunction with Roberto's employers in Paris. - So after consultation with the director and the director of the institute we had a raise. So now of course box office which involved more responsibility. He's paid a little bit more than usher. And of course when I'm doing film programming that the rate changes well and there's more more activity involved, more responsibility. I'm dealing with the prices of the film contracting the price of the film. So in that case the more responsibility and the rate is a little bit higher. - We asked Roberto if switching between these different roles meant that his income varied per month and he told us that while it can certainly fluctuate a bit he tries to keep it stable by mixing and matching the necessary jobs each month. My pay varies each month. But the road had tend to give us the same number of hours. We got a set number of hours that we do although we're in a zero hour contract. But yeah, it's true sometimes I pick up shift when I've got more free time from my freelance work. Sometimes if there are festivals I do more freelance work here. Done a Q&A for example last week. I'm a moderator at the Q&A with a French director. And yes, so he came various but I tried to tend to make it be stable each month. - While Roberto was telling us about his work life he mentioned something very surprising about the way he is taxed. His income is taxed automatically but there's a little extra step he has to take. - My taxes calculated automatically but even if I'm not a French national and I don't live in France, at the end of the year I have to declare what I heard to the French state. I can testify there's a lot of people working both when I work in the admin section of the programming back and forth with the financial department and yeah, we're always missing some documents so that's part of the job. - I found this quite interesting because the cinema is part of a French public institution Roberto needs to declare his income in France. I definitely believe him when he says that the paperwork for all of this is a lot. As Roberto's story illustrates figuring out who gets paid the national minimum wage and how to calculate the correct amount isn't always the most straightforward. I also wanted to know more about what happens when employers get it wrong. So I went back to social and Ben. So there are consequences are at 200% penalty of the underpayment to the employer and there is also what they call the national minimum wage name, what we call it the national minimum naming and shaming list. That's issued by government, they publicly name employers and the reason for the underpayments. And some of those areas that if even to some of the simple things that you think are apprentices so apprentices within their first year they can be on the lower rate. And then obviously after the first year they need to go on to that age appropriate rate. You know, I need, employers need to keep accurate records and need to know, okay, my pension is this their year, this is when they're turning, it's when they're coming out of the friendship, I need to make sure that I'm paying in the correct rate at the correct point. You know, holding correct details and holding correct records for employees making sure their data first are correct so they can pay the correct rate based on their age, especially those that are kind of below the 21 range. So those are the kind of factors that, you know, and I think those are some of the most common ones where employers breach is around either deductions from pay, they're the most common ones. And also the apprenticeships, I think that's a big common one. When you look through the list and you see some of the breaches from minimum wage. - Yeah, I think, you know, there were total 524 companies where in that list there was declared on and I think in February, I don't remember the exact number but around 70,000 employees got impacted. So there are a lot of companies who are not getting it right for, and I don't believe these are intentional. I believe this is just, you know, like what Ben just explained. There are things which are missed, right? Data is not there, which are completely avoidable. - Okay, a 200% penalty on the underpaid amount is quite a hefty penalty. So yes, it's definitely really important to stay on top of this. - Given the gravity of this issue, how is ADP helping its clients in the UK avoid compliance problems around minimum wage? - So ADP is supporting their clients around the minimum wage piece by helping them really understand the national minimum wage legislation that's really complex and they're making them understand it from an employer's perspective. We provide insights based on the employer's data, which then helps the clients understand where they may potentially have a breach and reduce their risk of non-compliance. - It definitely seems like this is an issue that employers really need to stay on top of. While researching this episode, I also came across holiday pay as another potential hurdle for employers. Ben and Sasha is calculating the correct holiday pay, another employer obligation that can get a bit complicated similar to the minimum wage. - I think, you know, national minimum wage is it's an incentive legislation and holiday pay again has its own set of legislations. They're very two complete different topics. And yeah, they seem to be the two favorite hot topics of employers of, you know, the first one is just round out the holiday entitlement. You know, that's government under employment law. And that has a certain amount of regulation around it. And then you've kind of got, the other side, you've got the flip side, you've got, okay, well, how does payroll make sure that the payment manually is accounted for correctly? And that comes under the legislation for payroll. So yeah, there's two sides there to kind of making sure that holiday pay is paid correctly. And the Department of Business and Trade DBT has been known for short. They issued some changes to the rules around holiday pay for a particular kind of workers around those that are a regular hour workers and part year workers. - Right, I remember reading that almost every type of worker in the UK is entitled to 5.6 weeks of paid holiday leave. And the pay for that leave is based on 12.07% of actual hours worked in a pay period. So these changes that the DBT introduced in January 2024 include a calculation method where an employers have to look back to the last 52 weeks that an employee worked for them and then calculate the average number of work hours in that period. I don't blame anyone whose head just started spinning a bit. - There's always a lot of complexity around the average holiday pay. You know, make sure you've got all the correct earnings. And then you can go back far enough. You need to go back the 52 weeks. And if not, go further until you get the calculation you need. So yeah, it's another complicated area that I think we get a lot of questions on. You know, we have like what we call an average rate of pay report to help our clients to assist them in the average holiday pay calculations. - Yeah, if I were an employer who had to figure this out, I'd definitely want some help. - Like Ben said, I think this is another complex topic. You know, employees have entitlement of holidays and it is employers responsibility to ensure they're paid accurately during that holiday. And it's not a simple calculation. You know, in some cases that it is calculated based on an employer's average working hours and compensation in last 52 weeks, last one year, and that 52 weeks can also change if a person has not worked for two weeks in between, it becomes 54 weeks. So, you know, when you calculate this, you need to get all this average. It's a pretty complex calculation. And this is another topic which is not easy for, especially for a corporation who is coming from some other country to do business here to understand and implement accurately. So these are some of the complexities of the barrel here. - I think we've covered quite a bit of ground today. But before we go, there's always one question that I like to ask our guests in this series and they always love hearing their responses because it really emphasizes why you all do the work that you do. We've talked a lot about potential issues, but what do you personally love about payroll in the UK? - The exciting bit for me is sometimes the new legislation that's always, you know, it's constantly changing. It's always evolving. This new is always around the corner. And it's kind of getting involved in those. You know, when something comes new, new legislation is kind of published. It's getting your teeth into those and understanding, okay, well, what does this mean for our clients? What does it mean to their employees? And then how do we make, how do we put that into our software so it makes it more human for them to use? I think that's a bit that excites me is, yeah, really understanding the detail of it, understanding how it can impact our employers, how can we make the best possible solution? So it makes it easy for them, makes it more human. - I mean, I find payroll very interesting, very exciting, because I've been in this industry for a very long time and I've been part of global payroll for a big part of my career. So I've seen payroll in many countries. You know, the most exciting thing about payroll is the fact that on a day of the month on 25th, mostly in this country, people get paid. And if you ask many people, what do you think of payroll? I think probably eight out of 10 people will say, "It's an automatic process, you just get paid." You know, something happens and you just get paid, it comes in your bank account. - First, the big, shouldn't get paid bucks and once a month and it's done. - Yeah, probably I would have thought the same if I did not join payroll industry. So obviously it's not that simple. Now, in this country, when you pay, every time you pay to an employee, we need to report to HMRC, which is the tax authority of this country. And if something is not right in that, the whole process may stop. I mean, I have some experience where, you know, some client did something for which the HMRC file did not go and everything stopped because that's how it is supposed to be. And then there was a mad rush. At that point of time, it's very stressed. It's very strained, but when it gets over, then you feel, okay, I learned something else. This can go wrong. And we have recovered another one. We have made sure that our client employees have been paid once again, like every month. And that's the reason they feel it's automatic. And that's what we want everyone to feel, that it's very youth, very easy. It happens, you don't need to worry. Whatever is supposed to happen, the accurate payroll, on time payroll happens all the time. So it's very, very exciting that I can tell you. - Yeah, we really hear that a lot, the feeling that you know you're doing a good job when you don't hear anything from employees because everything's working like it's supposed to. You only get feedback when something goes wrong. Sarsha and Ben, thank you so much for your time and expertise. It's been really interesting to learn more about the complexities of minimum wage in the UK and all the different factors that go into it. I hope you got a bit of a deeper insight into how payroll in the UK works today. If this episode has piqued your interest or your company is considering expounding into the UK and you want to learn more about payroll there, please go to the ADP UK website, uk.adp.com. And don't forget to subscribe to learn more about payroll around the world with each new episode. You've been listening to ADP payroll around the world, produced by ADP and Story Things. (upbeat music) (upbeat music) (upbeat music) (upbeat music) (upbeat music)