Employers should be mindful of 29 February 2020

17/01/2020

2020 is a leap year, which means there is an additional day in February – the 29th. For many, this will have absolutely no impact on their pay, but employers are being urged to exercise caution in certain scenarios.

A large number of salaried employees will work the additional day and see no effect on their pay. Where their hourly rate is close to or sits at the National Minimum Wage (NMW) or National Living Wage (NLW), businesses are being urged to take care. If this applies to any of your staff, you should ensure the additional day does not reduce employee pay to below the legal minimum. Non-compliance could result in a large fine from HMRC.

An employee who receives a salary where their hourly rate is substantially higher than the NMW/NLW will have no entitlement to additional pay for the extra day. The only exception is if there is an explicit stipulation in their contract that relates to this. Alternatively, you could decide to make a goodwill payment in relation to the additional day, but this would be an entirely voluntary decision.

How can you ensure an underpayment does not accidentally arise?

You should ensure that annual salaries for your employees for the pay year including 29^th February are sufficient to satisfy NMW/NLW. To do this, you should use a 52.3 week year as opposed to the usual 52.1.

As an employer, you also need to remember that your workers may only be treated as salaried for Minimum Wage purposes if they meet three criteria. They must be paid either weekly or monthly, receive their salary in equal instalments, and their contract of employment must set out the Basic Annual Hours to be worked each year.  If these three conditions are not satisfied HMRC may rule that your staff are not salaried, which can lead to accidental underpayments and associated fines.

To satisfy the NMW/NLW regulations, you should calculate pay using a 52.1 week year (or 52.3 for leap years).

Where your workers are paid by the hour or in terms of the amount of work they complete, things are much less complex. These people will feel the benefit of earning more should the additional day in the year mean that they carry out more work. This is because they are entitled to payment based on hours worked or work completed, and not to a fixed salary each year.

For help and advice on complying with the National Minimum/Living Wage requirements, get in touch with Peter Davies or Susan Elsdon.