How to calculate back pay - and how to pay it?

RCoy · PayPerShop Newbie Joined: 26 Jan 2008 Posts: 1

Hello.

I am new to this forum, and hope someone can help. My husband and I started our limited liability company over two years ago, with assistance from an accountant. The salaries of the employees were set in accordance with national minimum wage, and reflected in the employment contracts.

We parted ways with our accountant, and I have been using Quickbooks and running our payroll through that. No problems, although I neglected to adjust pay for increases in national minimum wage. I think I should make that adjustment, and back-date it.

In order to do this, should I just calculate the difference between what they were paid, and what they should have been paid, and then calculate the NICs and PAYE on this difference, or is the process more complicated than that?

Also, should I then just add these amounts to one of their paycheques, or issue a seperate cheque.

Any advice would be gratefully received.

Regards,
Rebecca

Ian Congreave · Posted: Mon Jan 28, 2008 7:28 am Post subject: How to calculate and pay back pay

Welcome to the PayPerShop forum and thank you for posting your question.

Yes, you should make the adjustment and backdate it. If you don't and one of your employees complains to HMRC about not being paid the national minimum wage (NMW), you will be required to recalculate the wages and pay the difference. New legislation, not yet in force, will also require employers in this situation to calculate the arrears using the current NMW rate instead of the rate that was in force when they were originally paid. And employers caught underpaying will also have to pay an automatic penalty!

When calculating the arrears, don't forget to recalculate any other payments you made that were based on their hourly rate, such as overtime, holiday pay, shift pay, bonus etc.

There is nothing more complicated about paying the arrears than you say. The total amount to be paid is added to the employee's normal gross pay, and tax and NICs deducted accordingly. Show the additional amount separately on the payslip as "NMW arrears", so that it is clear, if ever there is a query, that you have paid the arrears. And keep your arrears calculations safely as part of your payroll records. The higher-than-usual net pay can be paid in a single cheque as normal.
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