Payroll or employers responsibilities

carole

I run payroll for clients of my husbands accountancy and tax advice practice.
We have several new clients that are in the pub industry who employ bar staff. When running the payroll for the employees I noticed that several staff were being paid under the minimum wage.
I informed the employer and calculated the back pay owed to each employee. I have altered the hourly pay rate to the new minimum wage level on my payroll software.
Is this my resposibility to inform the employer or should the employer be notifiying me.
I have had to spend a lot of time going through each employee and checking the date of birth to ensure that they are being paid the correct hourly rate.
Legally who is responsible for ensuring staff are paid at the correct rate of pay.

Sorry if this is a bit long winded.

Carole

Ian Congreave

An interesting question with an easy answer but one that leaves issues for you.

I have a very clear statement from HMRC on this issue: "It is an employer's legal duty to pay at least NMW when it is due. Therefore the employer is responsible for making sure that staff are paid the appropriate minimum wage and cannot delegate that responsibility to the payroll provider.�

From you question, I think the issue you have is how far you should go to force your client into meeting his statutory obligations. I don't think there is an easy answer, and I would like to see some other accountants or bureaux commenting on their approach to this. However, there is no statutory issue here; the matter is principally contractual. What role does your contract with your client give you and give him? From my experience, I think most payroll service providers go out of their way to inform the clients of their obligations but, unless your contract states that the service provider will do whatever is necessary to ensure compliance with the law - such as changing the employee's rates of pay if they do not comply with the NMW - I don't think you can go as far as you are suggesting.
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Ian Whyteside

Hi Ian,

Hope you don't mind me butting in on this one. From my knowledge of provider services you are right, the actions the provider must take depends very much on the terms of the contract with the client, however I don't think it is as simple as this.

Accountants have an obligation not to act unlawfully in respect of their clients dealings and cannot carry out an action they know to be unlawful and then justify it as being in the contract. Secondly, if a client will not act lawfully the accountant is obliged to stop dealing with them and report the matter to the appropriate authority, in this case the NMW unit, in Manchester I believe.

To do otherwise means not only being in breach of statutory requirements but also breaching their professional code of conduct and ethical policies which all accountants in practice have to be signed up to.

I think it is a serious dilemma for this practice because to comply she really ought to serve notice on the client to meet the statutory NMW requirements or withdraw the service. I feel she has probably carried out a very interesting action in just applying it and seeing what the client does. It's not right, by any means, but it certainly forces the issue, protects her company and places the onus to do something on the client, e.g. let it run or change provider.

Interesting if we could hear about the next stage in this story and like you Ian i would be very interested to hear what other, small providers, do.

Ian Whyteside

Jeepers · Posted: Wed Nov 21, 2007 1:02 pm Post subject:

This is how we handle the yearly NMW increase for our clients.

Prior to the NMW increase we send out details of the new rates to all our clients, we also inform the client that we will not be automatically increasing an employee's rate of pay to comply; we specifically ask them to inform us of any increases required. If we believe an employee is being paid below the NMW for a pay run we will include a note to that effect for the following three runs asking the client to advise us of the new pay rate and that we will also calculate any back pay required.

We are not accountants nor tax advisors but a payroll bureau; I believe the obligation to ensure that the client acts within the law does not specifically apply to payroll bureaux (I may be wrong). Having said that, we will do everything we can to ensure that the client is acting within the law but must accept the fact that, regardless of the amount of information sent to the client ensure that they are fully aware of their legal obligations, we are processing the payroll on the client�s behalf based on information supplied by a client who is fully aware of his legal obligations. It is the client�s responsibility to ensure that he is running his payroll correctly and legally regardless of who actually processes it.

We do make the same decisions as accountants; we use morals instead of obligations as the deciding factor and we will withdraw our services if we feel the client is flouting the regulations despite our best efforts.

Ian Whyteside · Posted: Wed Nov 21, 2007 1:21 pm Post subject:

Jeepers,

I totally agree with this approach in your case because, as you say, you are not accountants in practice and are therefore not governed by the rules which apply to them.

The AAT is about to change its memorandum and articles to bring them fully in line with the 3rd money laundering directive which will extend its members in practice responsibilites for complying with the law to moeny laundering but they are already responsible for other lawful activities of their clients anyway.

It cannot be long before the IPP extends its remit to include members compliance on behalf of clients and that will drop payroll bureaux very firmly in this dilemma if it is owned or run by IPP members.

I think it will not be too long before the law extends its powers to all parties involved in a transaction and it will be interesting to see what happens now that HMRC have two successful prosecutions under its belt and really have the bit between its teeth on the matter.

As I said I can fully appreciate your approach and would do so myself in the circumstances but how would you handle it if you were placed in the position of being responsible in law for ensuring the payroll complies, how much of a change would that be?

Ian Whyteside

Jeepers · Posted: Wed Nov 21, 2007 1:53 pm Post subject:

Hi Ian

If we became responsible for ensuring compliance it would probably result in an increase of our charges as, even though we do all that we can to ensure compliance currently, there would have to be more systems put in place to make sure that absolutely nothing �fell through�.

Off the top of my head I would say that we would have to write into our contract that after advising a client of any changes required to ensure compliance we would implement them automatically. Should the client refuse to accept the proposed changes we would have no alternative other than to cease our service.

As we would never be knowingly in a position of processing out of compliance I feel that there would be no obligation for us to have to report anything as, technically, it never actually happened. May be pushing it a bit there but that would be my initial reaction.

carole · Posted: Wed Jan 16, 2008 2:14 pm Post subject:

Thanks to everyone who replied to my question. Sorry for the late reply.
We will now be notifying clients prior to changes in NMW levels asking for permission to adopt the changes into staff wages. If no permission is granted we will terminate payroll services.
Employee DOB will be checked at the begining of each year. Reminders will be set up for individual employees who need to be moved from lower level to middle level or middle level to higher level NMW bracket. Example employee is 21 years old then has a birthday during the year making employee 22 years old. The employee will need to go up to the higher level wage bracket. The employer will be informed and need to give permission to change the individual employee wage bracket.

Hopefully this will prevent any problems from occurring.

comments welcome

Carole