Where an individual is liable to pay tax at any age, other statutory deductions and commitments are triggered by age. Here we will look at some of the areas where age matters.
National insurance (NI)
This is the most familiar of the statutory deductions, and the one that most payroll providers get right. An employee will start paying national insurance at the age of 16 and will continue to pay until their state pension age. That is seemingly a simple and manageable rule. However, since the state pension age is under review and has already been amended several times, there is the possibility that deductions may cease too early, or continue to be made after an employee is liable to pay them.
Most payroll software systems will have the age parameters built in. However, if there is an ‘age critical’ employee, it would be worth checking the national insurance deductions that the software calculates before processing employee’s pay, thus avoiding any errors or embarrassment.
It is not just the age at which employees cease paying contributions that is under review. In the Office of Tax Simplification’s paper ‘The closer alignment of income tax and national insurance’, there were seven recommendations, three of which were to:
- Align national insurance and income tax legislation so that the two systems benefit from the same reliefs.
- Bring taxable benefits (BiKs) into Class 1, abolishing Class 1A contributions.
- Move to an annual, aggregate and cumulative method for calculating the contributions.
Over time these changes, if implemented, would make the systems easier to understand and implement and thus save time and money for both employer and agent.
The ages of employees must be closely monitored for minimum age compliance as penalties for non-compliance can reach up to £20,000.
The question is though, who is responsible for reviewing employees’ dates of birth? Traditionally AAT members who offer payroll services tend to have small employers as clients. These employers are often too busy running their businesses to be concerned with all ‘that tax stuff’. Those employers could assume that their agent is monitoring the birth dates, and the agent could assume that the employer is doing so. And through this misunderstanding penalties can be incurred. To avoid penalties and the possible loss of clients, reviewing employer/agent contracts and having an open discussion with each employer is to be recommended.
Once individual responsibilities have been established check the payroll system to see whether there is an age trigger. Many software packages will have a minimum age indicator built in to warn of possible contravention. However, it may only act as a trigger when the employee reaches the relevant date, giving you little or no time to inform the employer. This in turn could lead not only to the possibility of a difficult conversation with said employer (why didn’t you tell me before?) but also to the calculation and payment of pay arrears.
Finally, a little note on the apprenticeship minimum rate. It is possible for someone in their twenties, or older, to be paid £3.40 per hour (1 October 2016 rates) if they are in their first year of an apprenticeship. It is only when they ‘graduate’ to the second year that they are eligible for the standard age-related minimum wage. It is to be hoped however, that employers do not implement such a strict pay policy when taking on mature apprentices.
Remember that the minimum wage rates, whether apprentice rates or not, are only the minimum. Employees can, and often do, receive more than the minimum. The rates for the different ages can be found on Gov.UK.
Automatic enrolment into a workplace pension
Whether an employer should automatically enrol a worker into a workplace pension is dependent on whether they work or ordinarily work in the UK, how old they are, and how much they earn.
Note that the term ‘worker’ is used, not employee. This is because the definition of worker is different from that of an employee, and could cover individuals who work for the employer on a contract that is not an employee contract. The employer should be forewarned of this possibility and care should be taken when assessing the workforce.
The critical age range for automatic enrolment (AE) is 22 – 74 years, as the employer must automatically enrol these workers into a workplace pension if the pay is above the minimum threshold (£10,000). Employees aged 16 – 21 years could have the right to join or ‘opt in’ to the pensions, and it is the choice of the worker that will dictate the action of the employer. Notice that these ages are not the same as those for national insurance contributions and are yet another set of age ranges to be monitored.
More details on the automatic enrolment process can be found at The Pensions Regulator. There is a lot of information so it may be worth waiting for the next blog that will cover AE worker definitions.
Finally, for those unfortunate enough to receive redundancy notices there are minimum payments to be made to each affected employee. Yet again, the amount of redundancy pay an employee receives is dictated in part by their age as follows:
- Half a week’s pay for each year of employment up to their 22nd birthday.
- A week’s pay for each year of employment for those aged 22 – 40.
- 5 weeks’ pay for each year of employment after their 41st birthday.
The rates and further information can be found at Making Staff Redundant.
As can be seen, there are a lot of different ages and age ranges to be monitored. This does not make the job of the payroll provider or employer easy, so below is a simple chart displaying the age trigger and the government regulation that is affected. Good luck.
Julie Hodgskin is a fellow member of AAT, runs a licensed accounting practice and is a technical materials author for CIPP.