Staffing budget essentials: Living wage increases, SSP rebate scheme and calculating holiday pay

6 January 2022

With many charities resorting to pay freezes, or even pay reductions, to help them weather the pandemic, finance leaders will be turning their attention to staffing budgets for the year ahead. We consider the recent changes to pay and holidays which employers should be aware of. 

Statutory pay and National Insurance increases 

The usual swathe of statutory pay increases are due to come into force in April 2022, with the National Living Wage set to increase by 6.6% to £9.50 per hour for workers aged 23 and over. The largest percentage increase is to the apprentice rate, which will increase by 11.9% to £4.81. Full details of the national minimum wage rates are available here. These increases will be accompanied by the increases to statutory pay rates including sick pay and family friendly pay, which are yet to be announced. 

The social care levy is due to be introduced in April via an increase in National Insurance contributions of 1.25%. This will place some additional pressure on employees' wages, with the average basic rate tax payer paying an additional £180 in National Insurance contributions and the average higher rate tax payer paying an additional £715. This change will be in place for the 2022/2023 tax year before being replaced by a new, separate levy. 

Statutory sick pay and Covid-19

It is expected that the requirement to pay statutory sick pay from day 1 of absence where an employee is absent for Covid-related reasons will continue for the time being, 
There is some good news for employers, however, in the form of the Covid-19 statutory sick pay rebate scheme being reintroduced from mid-January. The scheme previously allowed employers with fewer than 250 employees to claim back up to 2 weeks' of SSP for each employee who was eligible to be paid sick pay due to Covid-19. Further information is expected to be published here shortly.

Holiday pay and bank holidays

There will be an additional public holiday this year, on Friday 3 June, to mark the Queen's platinum jubilee. The late May bank holiday has also been moved to Thursday 2 June for a 4-day weekend. Whether employers are required to give staff this additional day off will depend on the drafting of their employment contracts. These should be checked in advance so that employers can notify staff if they are required to use a day's holiday for the additional bank holiday. 

There have been some changes to holiday pay in the last few years which may have been overshadowed by disruption caused by the pandemic:

  • Holiday pay for workers with variable hours or regular hours but variable pay (for example, if they are paid different hourly rates depending on when they work) should be calculated on the basis of their earnings over the 52 weeks prior to their holiday. 
  • Holiday pay for those working during term-time only should also be calculated on the basis of the previous 52 weeks' earnings. Previous common practice of calculating casual workers' holiday pay on the basis of 12.07% of hours worked should no longer be used. The case which established this change is due to be heard by the Supreme Court this year, which may offer more clarity on calculating holiday pay generally. 
  • To complicate matters further, the payments that should be included as 'earnings' differ depending on workers' working arrangements: 
  • For workers with no normal working hours, overtime and commission payments should be included as earnings.
  • For workers with normal working hours, earnings should be based on their basic salary, disregarding any overtime hours with the exception of any overtime which is guaranteed by the employer and is compulsory for the worker to complete. Commission and bonuses should be included as earnings where these form part of the worker's entitlement for working their normal hours or if pay varies with the amount of work done. Where a worker has normal working hours but their basic pay varies, earnings will be calculated on the basis of their average pay over the previous 52 weeks.

Employers should take this opportunity to check that their current practices are in line with these requirements. 

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