Section 10 Pay Issues 10 PAY ISSUES This

section 10: pay issues 10 pay issues ============= this section provides information on: * the living wage *

Section 10: Pay Issues
10 PAY ISSUES
=============
This section provides information on:
*
The Living Wage
*
Honoraria/Payments to volunteers
*
Guidelines for local pay arrangements
*
National Insurance and Income Tax
*
Sick pay calculations
*
Provision of accommodation
1.
The Living Wage
---------------
The Living Wage Foundation (LWF) and the Methodist Conference promote
the concept of the Living Wage. The November 2017 Connexional
Allowances Committee confirmed the hourly rates of £8.75 per hour
(previously £8.45) in all regions (including Scotland) and £10.20 per
hour (previously £9.75) in London from 1 April 2018 to 31 March 2019.
Please note that these rates are agreed on an annual basis by the
Connexional Allowances Committee (CAC). As long as Lay Employees’
salaries are based on this pay scale, any subsequent uplift to the pay
scale on a yearly basis will be the decision of relevant budget
holders.
There is no mechanism for increments or uplifts to this scale other
than adjusting the amount for the Living Wage. Each church can apply
its own cost of living increase according to affordability and
sustainability.
Living Wage
The Living Wage
01 April 2018-31 March 2019
£8.75 per hour in all regions (including Scotland) and £10.20 per hour
in London
See Appendix 10.1 for practical information on implementing the Living
Wage.
2.
Honoraria/Payments to Volunteers
--------------------------------
The Methodist Church has a substantial number of members and others
who give service voluntarily in its ministry and mission. Such
volunteers are not affected by the National Minimum Wage Act, provided
they are genuine volunteers working without pay.
In some situations the Methodist Church has entered into agreements
with ‘Time for God’ or other voluntary service agencies who provide
volunteers to perform a task but who receive no ‘wage’ or ‘salary’ for
performing the task. Instead they are usually provided with basic
accommodation, have any expenses necessarily incurred in the course of
their duties reimbursed, and are usually offered some ‘pocket money’
or minimal allowance by way of subsistence. Such workers are not
subject to the provisions of the Act.
Before any charges for accommodation are imposed, advice should be
sought to ensure that no tenancy is being created.
The practice of paying honoraria should be implemented with care.
An honorarium is intended to be no more than a gift for carrying out a
voluntary duty. It should not be regarded as remuneration for any work
done, should not be offered before the duty is undertaken, and an
honorarium should not become a regular payment. In strict terms an
honorarium is a one-off ex-gratia payment, that is, there is no
obligation to pay it, regardless of work being completed.
Organisations that are found to be paying honoraria inappropriately
may have to pay backdated tax and National Insurance contributions.
An honorarium paid to a volunteer should be put through the books and
is liable to tax and National Insurance.
10.3 Guidelines for Local Pay Arrangements – Local Religious Centres
(LRC)
--------------------------------------------------------------------
HMRC Guidelines for LRCs
An employee is anyone employed under a contract of service and
includes casual and part time workers i.e. lay Employees and cleaners.
LRCs which take on an employee need to follow the HMRC guidance which
is in Appendix 10.2 Guide on PAYE / NIC for Local Religious Centres
or go to http://www.hmrc.gov.uk/manuals/pommanual/PAYE23030.htm
HMRC Starter Checklist form needed
An LRC must establish whether the employee has another job/s and/or a
pension/s, which would require the LRC to register as an employer.
Therefore all new employees must complete the HMRC Starter Checklist
(formerly P46)
See Appendix 10.3 for HMRC Starter Checklist form or download from
https://www.gov.uk/government/publications/paye-starter-checklist
Contacting HMRC
As HMRC rules are constantly changing, ALL employers are advised to
contact the HMRC EITHER to register OR to obtain authorisation to keep
detailed records (see Appendix 10.2) for employing only one employee
who earns less than £116 per week (providing that employee does not
have another job/s or receive a pension/s).
To contact HMRC either telephone the New Employer Helpline on 0300 200
3211 (or 0300 123 1073) or write to: HMRC, PO Box 205, Bootle, L69 9AZ
or register on line.
For helpful and comprehensive advice about registering as an employer
go to https://www.gov.uk/register-employer.
Payroll Arrangements
In some cases (as outlined in Appendix 10.2) the employment need not
be reported to HMRC but, where it does need to be reported, LRCs have
the options to:
a.
register as an employer with HM Revenue & Customs allowing it to
operate the “Pay-as-you-earn” (PAYE) Scheme.
Once an LRC is registered as an employer and has an ID, payroll
software can be downloaded to work out PAYE and NIC for fewer than 10
employees. Go to https://www.gov.uk/basic-paye-tools.
or
b.
arrange to use the Payroll Bureau Service provided by the Finance
Office at Methodist Church House. The Finance Office payroll team
will provide full payroll service for a charge and administration
fee of £480 per annum inclusive of VAT, for employees up to five.
There will be additional charge over five employees based on the
number of employees on the scheme. For further information please
contact the payroll team
[email protected]
or
c) Arrange for an independent payroll service to run their payroll
(which is likely to be cheaper than £480 per year for a small number
of employees)
[Some churches which employ only one person, as a cleaner for example,
ask the circuit Treasurer if he/she can assist by adding the cleaner
to the circuit’s payroll.]
To help an LRC make a decision go to:
https://www.gov.uk/paye-for-employers/choose-payroll
Class 1 National Insurance Contributions (NIC)
The PAYE scheme allows for the collection of Class 1 National
Insurance Contributions and Income Tax at source and payment over to
the Inland Revenue.
Class 1 NIC is made up of two elements – employee’s and employer’s
contributions. Whether or not employee’s and/or employer’s NIC is
payable depends on:
The employee’s AGE which must be at least 16 years AND
The employee’s EARNINGS, which must exceed the Earnings Threshold
(ET).
Employees over the State Pension Age (65 for both men and women) do
not have to pay “employee’s NIC”. There is no such restriction for
Employer’s NIC.
Please note: Earnings in this instance mean all payments made to an
employee for service regardless how it is described i.e. Salaries,
Wages, Bonus, Overtime, Commission, etc.
To calculate Class 1 NICs, two other earnings levels are relevant.
Lower Earnings Limit (LEL) - the minimum level of earnings that an
employee needs to qualify for benefits such as Retirement Pension and
Jobseekers Allowance. No NIC is payable at this earnings level.
Upper Earnings Limit (UEL) –the employee’s NIC is limited to 2% only
for all earnings above this limit. The employer would however continue
to pay NIC at the full rate of 13.8% beyond this point.
The rates for the tax year are as follows:
Tax Year 2018 2019
Lower Earnings limit (LEL)
£116 per week
£503 per month
£6,032 per year
Primary Threshold (PT)
£162 per week
£702 per month
£8,424 per year
Secondary Threshold (ST)
£157 per week
£680 per month
£8,164 per year
Apprentice Upper Secondary Threshold (<25 years old) (AUST)
£892 per week
£3,863 per month
£46,350 per year
Upper Secondary Threshold (under 21) (UST)
£892 per week
£3,863 per month
£46,350 per year
Upper Earnings Limit (UEL)
£892 per week
£3,863 per month
£46,350 per year
Source:
https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2018-to-2019#paye-tax-and-class-1-national-insurance-contributions
If the employer will pay more than the ET, they should write to the
PAYE tax office for the area
where the LRC is located, with details for each recipient, as follows:
-
*
National Insurance Number
*
Name and Address
*
Date and amount of first payment
*
Nature of employment
The employer will be provided with information for the operation of
PAYE / NIC and told how to report all payments to the tax office.
£3,000 National Insurance Employment Allowance
Methodist small employing bodies are advised not to claim this
allowance or, if they have already received the allowance, to send it
back immediately
See Appendix 10.4 Advice on NI Employment Allowance from MCH Finance
Office
3.
Income Tax
----------
The level of income at which income tax becomes payable (the PAYE tax
thresholds) for the tax year is:
2018-2019
£228.00 per week
£988 per month
£11,950 per year
If the employee’s total taxable income including state and
occupational pensions is below these figures, then no tax needs to be
deducted.
If the employee’s income will be above these figures they should write
to the PAYE tax office for the area where the LRC is located, with
details for each recipient, as follows: -
*
National Insurance Number
*
Name and Address
*
Date and amount of first payment
*
Nature of employment
The employer will be provided with information for the operation of
PAYE / NIC and told how to report all payments to the tax office.
Income tax should be computed using Special Inland Revenue Tax Tables
or the applicable tax rates for the tax year, which are as follows:
Taxable Income
2018 - 2019
Basic tax rate
20% on annual earnings above the PAYE tax threshold and up to £34,500
Higher tax rate
40% on annual earnings from £34,501 to £150,000
Additional tax rate
45% on annual earnings above £150,000
Emergency tax code
1185L W1, 1185L M1 or 1185L X
NB: Taxable income is gross income including pensions less personal
allowance after allowing for employee pension contributions and GAYE
deductions.
Source:
https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2018-to-2019#paye-tax-and-class-1-national-insurance-contributions
4.
Sick Pay Calculations
---------------------
There are two types of sick pay that an employer may pay:
*
Statutory Sick Pay (SSP)
*
Occupational Sick Pay (OSP)
SSP is the statutory minimum, which employers must pay if an employee
is unable to work due to sickness.
Occupational Sick Pay (OSP) may be paid in addition to SSP. OSP
normally makes SSP up to full pay. The contract of employment should
state whether or not OSP is payable, and if so, for how long.
It is usual to calculate OSP over a “rolling year”, that is to
consider absence in the 12 months immediately preceding the absence.
The employer should also be clear how an employee will re-qualify for
OSP if their entitlement expires.
Employing bodies should take care to apply “discretion” consistently
in order to avoid a complaint of discrimination.
Statutory Sick Pay
Before an employee is eligible for SSP, they must be unable to work
for 4 consecutive calendar days. This applies to full time and part
time employees. There are other qualifying conditions that must also
be satisfied: -
*
Average weekly earnings must be equal or more than the LEL (see
above).
*
The employee must be aged between 16 and 65.
*
Contract of employment must be for 13 weeks or more.
SSP should be paid only for qualifying days i.e. the days of the week
on which the employee is required by their contract to be available
for work. These are the only days for which SSP can be paid and are
also the only days which count as waiting days.
Absences of 4 days or more are linked if they occur within 8 weeks (56
days) of each other. An employee whose subsequent absence is linked to
another absence (irrespective of the reason for the absences) does not
have to wait for three days before receiving SSP.
An employee may receive up to 28 weeks SSP, after which time the
entitlement expires. The Inland Revenue sets the weekly rate of pay
for SSP annually.
Statutory Sick Pay (SSP)
Standard weekly rate
from 6 April 2017
2018 – 2019
£92.05
The amount of SSP paid is calculated by dividing the weekly rate of
SSP by the number of qualifying days in a week.
From 6 April 2014 the recovery of SSP was abolished. You cannot
therefore recover SSP for any tax year from 2014-2015
For further information about this, please contact your local tax
office or the Methodist Church House Stipends Team.
5.
Common Problems to be Aware of:-
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1.
Employees on Benefit
When you know that a potential employee is on benefit, please ensure
that the appropriate Benefits Office has been informed that you wish
to employ them. As a minimum, you should always ask for evidence of
their National Insurance Number.
2.
Employees who do not have a National Insurance Number
Keep a record of their full name (surname and first names), address,
date of birth and sex and ask them to contact their nearest Jobcentre
Plus office to obtain a National Insurance Number.
3.
Employees who hold other employments
Determine if NIC is payable based on their age and the earnings agreed
with them. Obtain a P46 Revenue form for the employee to complete
Section 1. This would help you to determine the appropriate tax code
to use for the Income Tax computation.
4.
Self employed workers
Ask for a copy of a letter from the Inland Revenue confirming their
self-employment tax status for your files. No deductions for Tax or
NIC will need to be made, once this confirmation letter has been
received. If an employer is in doubt regarding the status of the
worker, it is advisable to deduct Tax and NICs via the normal PAYE
procedures.
5.
Remunerating the church organist
Payment is normally irregular depending on the number and frequency of
services taken. Whether or not NIC and/or income tax is payable will
depend on the age of the organist, the period covered by each payment
and their earnings from other sources. First establish the full facts
of each case and consult your local tax office, for advice, if
required.
6.
Paying travel expenses of employees and other office holders
Reimbursing employee expenses of travel between home and the place of
work would give rise to liability to tax. However, for other office
holders working on a voluntary basis for the LRC, where similar
payments are made, no tax charge will arise.
7.
Provision of accommodation
Legal advice should be sought on residency arrangements to ensure the
appropriate type of agreement is set up.
For further information, see Section 11: Residency Arrangements.
NOTE: The Tax Office can help with publications giving further
guidance on how to operate tax and NIC and other aspects of pay.
Date last modified: 26 July 2018
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