NLW and NMW, Averaging for authors, Agent authorisation

Last week, following the news that the John Lewis Partnership has fallen foul of the National Minimum Wage rules, we explained how to check that your clients are paying their workers enough. We also took a look at the averaging rules for authors and literary artists. Finally, we explored the agent authorisation process and the different authorisation routes available.

Below we share just part of one of the above 3 tax tips – see the side boxes on this page to learn how you could subscribe to receive the full 3 tax tips every week.

NLW and NMW – employer beware

The John Lewis Partnership has a reputation as an excellent employer, but the news has recently come to light that after adopting `pay averaging’ arrangements they have unintentionally fallen foul of the National Minimum Wage regulations as the payments for some `pay reference periods’ had fallen below the minimum wage.

So what is a `pay reference’ period and what do clients need to be aware of in order to comply with the rules?

Briefly, employers are required to pay `workers’ aged 25 and over the National Living Wage (NLW), set at £7.50 per hour from 1 April 2017. Younger workers must be paid the National Minimum Wage (NMW) appropriate to their age. The worker must be paid at least the minimum wage, on average, for the time worked in the pay reference period. The pay reference period is normally determined by the frequency by which the employee is paid, so weekly for weekly paid employees or monthly for monthly-paid employees. Crucially, the pay reference period cannot be more than 31 days.

The NLW and NMW are worked out as an hourly rate, even if the worker is not paid by the hour. Different checking procedures apply depending whether the worker is paid by the hour, paid an annual salary, paid by what they produce (piece or output work) or paid in other ways (unmeasured work).

Where the worker is paid hourly, it is simply a case of checking what the worker is paid in the reference period against what he would be paid at the NLW/NMW for that period.


In May 2017, Susan (aged 43) works 140 hours. She must be paid at least £1,050 (140 hours at the NLW of £7.50 per hour).

Where a worker is paid an annual salary, the basic annual hours in the worker’s contract are divided by the number of times the worker is paid each year (so by 12 where the worker is paid monthly). The minimum pay for each pay period is found by multiplying the average hours for the pay period by the minimum wage appropriate to the employee’s age. So a monthly paid worker age 27 contracted to work 1980 hours a year must be paid at least £1,237.50 a month (1980/12 x £7.50).

It is important that clients understand how to work out the minimum wage for the type of work that their workers do and have checks in place to check that this is being paid for each and every pay reference period.

Share dealing losses, National living wage, VAT on telecoms services

Last week we examined a case concerning share dealing losses which provides hope to all day traders. You need to warn your clients about the NMW rate rise on 1 April 2016 and about a change in VAT treatment on wholesale telecoms services which applies from 1 February 2016.

This is an
extract from our topical tax tips newsletter dated 21 January 2016
(5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

National living wage 
The national minimum wage (NMW) rate normally increases with effect from 1 October. Many employers will be geared up to include such changes in their annual pay reviews. However, the next rate change applies from 1 April 2016. 
In his Summer Budget on 8 July 2015 George Osborne stole the opposition’s clothes by announcing a “National Living Wage” of £7.20 per hour, to be gradually increased to £9 per hour by 2020. In fact the living wage is just another NMW rate, with all the same legal requirements. It must be paid to workers aged 25 and older for pay periods that fall on and after 1 April 2016. 
The NMW for those workers is currently £6.70 per hour, so a 50p per hour increase is significant. It will push the weekly wage for a worker on 35 hours up from £234.50 to £252, and cost the employer an extra £19.91 per week including employer’s NI. Where the worker is enrolled in a company pension under auto-enrolment the total cost to the employer will be higher. 
You can help your clients identify which employees should receive a pay rise from 1 April, and budget for this extra cost. Remember company owner/directors don’t have to pay themselves the NMW or living wage as long as they don’t have a contract of employment with their company. Family members living in the employer’s home also are not entitled to the NMW. 
The employment allowance is increasing from 6 April 2016 from £2,000 to £3,000 for most employers. One-man companies won’t qualify for the employment allowance in 2016/17. 
The extra £1,000 of allowance will be available to off-set the additional employers’ NIC payable on the compulsory wage increases for workers entitled to the living wage. However, the employment allowance can’t be used to off-set the cost of pension contributions, or the actual wage increase itself.  

This is an
extract from our topical tax tips newsletter dated 21 January 2016
(5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

full newsletter contained links to related source material for this
story and the
other two topical, timely and commercial tax tips. We’ve been
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