Episode 4: Payroll in the United Kingdom

Luisa Rollenhagen  00:06

Hi and welcome to another episode of ADP Payroll Around The World! I’m your host Luisa Rollenhagen. 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 who’ll share their experiences with us. 

Today our journey takes us to the United Kingdom. It’s a crucial launchpad 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 corporates see London as the preferred seat for international arbitration.  

But what does today’s world of work and pay look like in the UK? 

Sirsha Haldar  01:20

There are 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 these are some of the changes that are coming.

Ben May  01:43

I think one of the hot topics at the moment is that there’s been a big increase in the national minimum wage hourly rates to individuals. 

Luisa Rollenhagen  01:52

That was a little preview from our two ADP experts for this episode, Sirsha Haldar 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 one 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.  

Sirsha Haldar  02:38

The UK has been very successful in probably the past few decades in banking, insurance, and anything to do with financial services. There’s a lot of innovations. I mean, if you look at the big innovative tech companies, they all have a presence here, a pretty big presence. I mean, the UK, in terms of education, the quality of education, universities, the UK is at the top of the chart, no doubt. So talent availability is very, very high. 

Luisa Rollenhagen  03:08

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 by completion of a task, and some receive a monthly salary. 

Roberto  03:41

I have a zero-hour contract to work as an usher and at a box office, they’re two different rates.

Luisa Rollenhagen  03:50

In some cases, like Roberto’s — the person you just heard —, 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 can 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, Sirsha and Ben! Would you mind introducing yourselves? 

Sirsha Haldar  04:34

My name is Sirsha Haldar, 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.

Ben May  04:48

So my name is Ben May. I’m the Senior Manager for payroll compliance in the UK.

Luisa Rollenhagen  04:53

Sirsha 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 two what, in your opinion, makes managing payroll in the UK unique from other countries?  

Ben May  05:19

I think one thing that always comes to mind to me that’s unique about the payroll in the United Kingdom is our tax year. Our tax year 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, they start on the 1st of January and they end on the 31st of December. 

Sirsha Haldar  05:41

I think, you know, UK, payroll is in many ways unique. On one hand, 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. 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. 

Luisa Rollenhagen  06:12

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 the Third.

I was curious about how Ben and Sirsha viewed the UK’s current labor market and what impact it had on running payroll, so I asked them to give me their perspective. 

Sirsha Haldar  06:37

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 in the UK. Probably it’s true everywhere, but I think UK probably is going through some of that adjustment.

Ben May  07:10

And we’ve also been through a cost of living crisis and potentially still going through a cost of living crisis. And as to Sirsha’s point, what will that mean over the next six to 12 months? 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?

Luisa Rollenhagen  07:32

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’s not from the UK need to know? 

Ben May  07:55

I think one of the hot topics at the moment is that there’s been a big increase in the national minimum wage hourly rates to individuals. We see that now going from 25 down to 21. So coming from abroad, 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, what does that mean for them? Yes, I can pay someone £11.44 an hour, but am I actually meeting my obligations? Are there other things that impact them in the wage calculation? That means there could potentially be a breach of a national minimum wage and they need to understand that. 

Luisa Rollenhagen  08:49

Can you break it down for us and explain what other things could impact the wage calculation?

Ben May  08:55

It sounds like it’s really easy. Just make sure you pay someone more than the minimum wage, the hourly wage rate. But it’s so much more than that. You’ve got your different types 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 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 your monthly paid. You divide one by the other. You divide the hours in the period by your monthly salary. And that’s normally your kind of hourly rate, or that, you know, both of those two are quite complex pieces. For employers to understand the full national and wage legislation, employers need to be thinking about, are they tracking all the hours that employees are working? Even unpaid time? They need to be looking at 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 employer’s own use and benefit. So there’s lots of complexity around national wage. And I think this is where we were saying that it’s not just the the payroll department’s responsibility, it’s everyone’s responsibility.

Luisa Rollenhagen  10:14

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.

Ben May  10:23

There was a poll recently around whose responsibility is national minimum wage? Is it finance, is it HR, is it payroll? Someone else? In the poll, everyone kind of goes, well 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. Am I requiring you to stay around for a security check after your time’s finished? I need you to stay around 15 minutes to do 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.  

Sirsha Haldar  11:00

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. So it’s important that they get the 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. Like ADP. We do that. We have been doing that for the last 75 years. 

Luisa Rollenhagen  12:04

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. 

Roberto  12:43

My name is Roberto Jano, and I fulfill different roles over here, from ushering… I work at the box office, but I’m a film programmer as well, so I deal sometimes with the program, how to bring the films to the cinema. And I run a film club once per month, where I introduce a classic to the public. And then after the film, usually we hold a discussion in the library where people talk about the film and their impression and what they think about the film. 

Luisa Rollenhagen  13:15

Working all of these different jobs means that Roberto’s employer needs to calculate the different wage rates that come with each role.

Roberto  13:23

I have a zero-hour contract to work as a usher and at a box office, they’re two different rates. And usually when I work for the film club, that’s a freelance job that I 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 going to work on the project. 

Luisa Rollenhagen  13:56

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.

Roberto  14:05

When I’m introducing in the classics for my film club, there’s so much work on research that I have to do. And of course, I do the extra mile because I want to be a more competent in the job that 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 an usher role or a box office role in the sense that like, some customers, they know me in those roles, so they tend to ask me questions when I’m on the day when I’m introducing the film and I’m not dealing with ushering roles or box office. 

For my usher role, it’s minimum wage. And of course when I’m box office, it’s paid a little bit more. And we actually had a raise because the minimum wage caught up with the box office hours.  

Luisa Rollenhagen  14:55

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.  

Roberto  15:21

So after consultation with the director, and the director of the Institute had to consult with Paris, we had a raise. So now of course, box office, which involves more responsibility, it’s paid a little bit more than an usher. And of course, when I’m doing film programming, that rate changes as well. And there’s more activity involved, more responsibility. I’m dealing with the prices of the film, contracting the price of the film. So in that case, it’s more responsibility and the rate is a bit higher. 

Luisa Rollenhagen  15:52

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.

Roberto  16:05

My pay varies each month, but the roster tends to give us the same number of hours. We got a set number of hours that we do, although we are on a zero hour contract here at the Lumiere. But yeah, it’s true. Sometimes I pick up a shift when I’ve got more free time from my freelance work. Sometimes if there are festivals, I do more freelance work here. I’ve done a Q&A, for example, last week, a moderated Q&A with a French director. And yeah, so it can vary, but I try to tend to make a bit stable each month. 

Luisa Rollenhagen  16:43

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:

Roberto  16:54

My tax is 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 earned to the French state.

And I can testify there’s a lot of paperwork involved. When I working in the admin section of the programming, there’s a back and forth with the financial department and yeah, we’re always missing some documents, so that’s part of the job. 

Luisa Rollenhagen  17:27

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 Sirsha and Ben. 

Ben May  17:58

So the consequences are a 200% penalty of the underpayment to the employer and there is also the, what they call the national minimum wage naming and shaming list that’s issued by government. They publicly name employers and the reason for the underpayments, and some of those areas are, even for some of the simple things that you think of… you know, 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 onto their age appropriate rate. And employers need to keep accurate records and need to know, okay, my apprentice, this is their year, this is when they turning, this is when they’re coming out the apprenticeship. I need to make sure that I’m paying them the correct rate at the correct point, holding correct details and holding correct records for employees, making sure their date of births are correct so they can pay the correct rate based on their age, especially those that are kind of below the 21 range. Those are the kind of factors that, 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 for minimum wage.

Sirsha Haldar  19:12

I think, you know, there were a total 524 companies that were in that list that was declared on in, I think in February. I don’t remember the exact number, but around 170,000 employees were impacted. So there are a lot of companies who are not getting it right. And I don’t believe these are intentional. I believe this is just like what Ben just explained. There are things which are missed, data is not there, which are completely avoidable. 

Luisa Rollenhagen  19:41

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 the issue, how is ADP helping its clients in the UK avoid compliance problems around minimum wage? 

Ben May  20:00

ADP are supporting their clients around the minimum wage piece by helping them really understand the national minimum wage legislation that’s really complex, and 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.

Luisa Rollenhagen  20:25

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 Sirsha, is calculating the correct holiday pay another employer obligation that can get a bit complicated, similar to the minimum wage? 

Ben May  20:45

I think national minimum wage has its own set of legislation and holiday pay again has its own set of legislations. They’re two completely different topics and yet they seem to be the two favorite hot topics of employers. And the first one is just round about the holiday entitlement that’s governed under employment law and that has a certain amount of regulation around it. And then you’ve got the other side, you’ve got the flip side, you’ve got, okay, well how does payroll make sure that the payment of annual leave 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 as they’re known, for short, they issued some changes to the rules around holiday pay for a particular kind of workers, around those that are regular hour workers and part-year workers. 

Luisa Rollenhagen  21:44

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. But of course, it’s a bit more complicated when you’ve got someone working irregular hours or part-time. 

So these changes that the DBT introduced in January 2024 include a calculation method wherein 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. 

Ben May  22:15

There’s always a lot of complexity around the average holiday pay, making sure you’ve got all the correct earnings and that you can go back far enough, you need to go back the 52 weeks and if not go back further until you get the calculation you need. It’s another complicated area that I think we get a lot of questions on and we have what we call an average rate of pay report to help our clients, to assist them in their average holiday pay calculations. 

Luisa Rollenhagen  22:45

Yeah, if I were an employer who had to figure this out, I definitely want some help,

Sirsha Haldar  22:50

Like Ben said, I think this is another complex topic. Employees have entitlement of holidays and it is an employer’s responsibility to ensure they’re paid accurately during that holiday. And it’s not a simple calculation. In some cases, it is calculated based on an employee’s average working hours and compensation in the last 52 weeks plus one year. And that 52 weeks can also change if a person has not worked for two weeks in between, then it becomes 54 weeks. So 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 yeah, these are some of the complexities of the payroll here. 

Luisa Rollenhagen  23:47

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 I 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? 

Ben May  24:06

The exciting bit for me, it’s sometimes the new legislation that’s always, you know, it’s constantly changing. It’s always evolving. Something new is always around the corner, and it’s kind of getting involved in those, when 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 for 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 the 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 that it makes it easy for them, makes it more human?

Sirsha Haldar  24:43

I mean I find payroll very interesting, very exciting because I’ve been in this industry for a very long time and been part of global payroll for a big part of my career. So I’ve seen payroll in many countries. The most exciting thing about payroll is the fact that on a day of the month on the 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 that it’s an automatic process. You just get paid, something happens and you just get paid. It comes in your bank account, 

Ben May  25:21

Press the big screen red button once a month and it’s done.

Sirsha Haldar  25:23

Yeah, probably I would’ve thought the same if I did not join the payroll industry. So obviously it’s not that simple. Now in this country, when you pay, every time you pay an employee, we need to report it 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 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 in time.

It’s very stressed, it’s very strained, but when it’s 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’s 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, very easy. It happens. You don’t need to worry, whatever is supposed to happen, the accurate payroll is on time, payroll happens all the time. So it’s very, very exciting, that I can tell you. 

Luisa Rollenhagen  26:37

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 the employees because everything’s working like it’s supposed to. You only get feedback when something goes wrong. 

Sirsha 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 expanding into the U.K. 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. 

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