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Budget 2021: What does it mean for HR and payroll teams?

By 03/03/2021June 22nd, 2021COVID-19, Employment Law
Budget 2021

In a significantly quieter House of Commons, Chancellor Rishi Sunak has this afternoon delivered the first Budget of 2021. Taking to the dispatch box while the nation continues to battle the COVID-19 pandemic; Sunak outlined his plans to lift the economy and support individuals, businesses and entire industries as we near the light at the end of the coronavirus tunnel.

After an extraordinary year of economic challenges where UK borrowing hit its highest level since World War II, today’s Budget was unveiled the government’s plans to rise from the ashes and rebalance public finances.

While personal tax hikes were expected, Sunak’s Budget instead delivered freezes on the income tax threshold, an extension to furlough and the stamp duty holiday, and a rise in corporation tax for businesses.

But there are significant announcements from this week’s Budget that will directly impact HR and payroll departments across the country.

Furlough extended until the end of September

As announced earlier in the week, the furlough scheme (also known as the Coronavirus Job Retention Scheme) has been officially extended to at least the end of September 2021. The scheme was launched back in April 2020 while the country was in the throes of its first national lockdown as a means of protecting jobs and reducing the risk of mass unemployment.

This afternoon, Sunak announced that the government will continue to pay 80% of employees’ wages for the hours they cannot work due to the pandemic. As the economy reopens, employers will be expected to pay 10% towards the hours their staff do not work in July, increasing to 20% in August and September.

What does this mean for HR and payroll teams?
Once again, the furlough scheme is being extended for employers that have been particularly affected by the coronavirus pandemic.

There will be no employer contributions beyond National Insurance Contributions (NICs) and pensions required in April, May and June. From July, the government will introduce an employer contribution towards the cost of unworked hours of 10% in July, 20% in August and 20% in September, as the economy reopens.

What’s more, employers must ensure they keep records that document the employees that were furloughed and prove an employee’s employment dates in line with the cut-off periods for entrance to the furlough scheme.

National Minimum Wage increased from April

The Chancellor also used today’s Budget to announce an increase to the National Minimum Wage and changes to the age threshold for entitlement to the National Living Wage. As of the 1st April 2021, the National Living Wage will rise to £8.91 per hours and the age threshold will be lowered from 25 to 23.

At the time of writing, the National Living Wage is £8.72 per hour and all workers over the age of 25 are entitled to this rate of pay. Those aged below 25 receive varying rates of minimum hourly pay depending on their age and whether they are an apprentice.

What does this mean for HR and payroll teams?
Employers must ensure that all workers are being paid fairly and in line with government guidance.

If you are found to have been paying workers less than the correct minimum wage, you will be obliged to pay any outstanding amounts to these workers along with a fine from HMRC for paying below the minimum wage.

If HMRC finds that an employer has not been paying the correct rates, any arrears have to be paid back immediately. There will also be a fine and offenders might be named by the government.

It’s the employer’s responsibility to keep records proving that they are paying the minimum wage – most employers use their payroll records as proof. All records have to be kept for 3 years.

HR and payroll teams will have to work together to ensure those that meet this new, lower age threshold begin receiving the National Living Wage to which they are entitled. They must ensure that younger employees or those employees that are due to enter the next age category, are remunerated at the prevailing rate of pay for their work from April 1 onwards.

Income tax and NI rates frozen from April

Income tax and National Insurance Contributions (NICs) have been frozen today from April 2021 until April 2026. The income tax Personal Allowance will rise to £12,570 from April 2021 and will remain at this level until April 2026. Similarly, the upper and lower earnings thresholds for NICs will rise in April 2021 to £9,568 and £50,270 respectively.

What does this mean for HR and payroll teams?
As an employer, you have a legal duty to retain records of NICs deducted from each employee and how you have worked this out. These must be stored securely and provided to HMRC upon request. Using payroll software will help you to maintain secure records of NICs paid by your employees.

Incentive grants for apprenticeships to rise

For those employers that take on apprentices, Sunak today announced an extension and an increase to payments made to these businesses. Employers who hire a new apprentice between 1 April 2021 and 30 September 2021 will receive £3,000 per new hire, compared with £1,500 per new apprentice hire (or £2,000 for those aged 24 and under) under the previous scheme.

What does this mean for HR and payroll teams?
Employers that are looking to welcome apprentices will benefit hugely from this grant. For some, it may be the incentive they need to take the leap and launch an apprenticeship scheme.

Designed to help support employers to find the skills they need to recover from the devastating impact COVID-19 has had on some industries; this grant will allow some employers to create new jobs.

Employers taking advantage of this grant must ensure they have an apprenticeship service account with gov.uk in order to apply for the incentive payment before their apprentice has started. This grant is paid in two equal lump sums. The first after an apprentice completes 90 days of their apprenticeship and the second after 365 days.

HR teams must work with department leads and line managers to ensure the success of every apprentice in order to receive the full payment.

New visa scheme to help firms source talent from overseas

As the UK exits the EU, the government today pledged to modernise the immigration system to help the UK attract and retain skilled, global talent – particularly in education, science, research and technology. With the objective of driving innovation and supporting UK jobs and growth, today’s announcement introduced an ‘elite points-based system’ by March 2022.

Amongst other measures to drive highly-skilled migration to UK, today’s announcement came with overwhelming support for UK start-ups. A ‘scale-up stream’ will enable those with a job offer from a recognised UK scale-up to qualify for a fast-track visa.

What does this mean for HR and payroll teams?
Today’s announcement widens the talent pool for hiring and HR teams exponentially. Often, some employers veer away from hiring overseas talent due to the bureaucracy and red tape involved in securing visas and Right to Work status.

A points-based system will not only make the process smoother but will encourage employers to look overseas for talented staff that can bring a different perspective and cultural values to a business.

A full overview of the Budget and policy changes can be found on Her Majesty’s Treasury here.

Please note: while we here at Natural HR work with HR professionals every day, we are not lawyers. This post is a high-level summary of announcements made in today’s Budget and should not replace sound legal advice available from professional solicitors or employment lawyers.

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