Two topics, one question - what is pay?

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Two major policy announcements – gender pay reporting and the national living wage – invite one very important question – what is pay?*

*Other policy announcements such as the apprenticeship levy and potential increases to the minimum salaries of non-EEA workers also invite questions on pay but for now we’ll focus on these two for today.




Let’s start with the National Living Wage…

While there has been no formal guidance on calculating National Living Wage, the – what we could perhaps call promotional material – from Government strongly indicates that the calculation for the National Living Wage will be the same as the national Minimum Wage. Confirming then, as we have previously blogged on, the NLW being simply a NMW for those aged 25+. (Would have been a lot easier to just call it this).

But anyway, back to what’s in and what’s out. Well, based on the most recently updated guidance on calculating NMW, there’s what pay would be in and what would be out when calculating the NLW:

What’s in and out of National Minimum Wage (and National Living Wage) calculations




Basic pay


Bonus payments

Advances of wages

Incentive pay

Pension payments


Lump sums on retirement


Redundancy payments


Rewards under staff suggestion schemes


Tips, gratuities and service changes




Shift premia




Payments to reimburse a worker’s expenses


Benefits in kind


In addition to the above, there are a number of deductions form pay and payments by workers that reduce minimum wage pay including expenditure connected with the job, deductions for the employer’s own use or benefit, payments to another person for expenditure connected with the job and certain deductions or payments by the worker for accommodation.

At the same time, there are also deductions and payments by workers that do not reduce minimum wage pay including deductions for income tax and NI, deductions because of overpayments of wages and voluntary payments by the worker for the purchase of goods and services (note this is not an exhaustive list)

We expect formal guidance, or updated guidance on the NLW in the New Year, this would be alongside the regulations that will also need to be published, ahead of the implementation date of April 2016.

Now let’s move onto what is pay when calculating the gender pay gap…

This is a bit more difficult because we don’t actually know. The Government’s response to the closing the gender pay gap consultation is likely to be published in the New Year.

However, what we could possibly assume is that the new gender pay gap reporting will include the elements of pay that the ONS use when calculating the gender pay gap.  The benefit of this would be that employers would be able to make comparisons and benchmark themselves against the ONS figures (which are then broken down by mean, medium, sector, occupation – if you’re like me and like to go into that level of detail like I did the other day).

Sounds good right? Perhaps not when you then look at what’s in, and what’s not….

What’s in and out of the ONS definition of pay when calculating the gender pay gap?




Basic pay

Pay for a different pay period

Paid leave including holiday pay

Overtime pay

Family leave pay (maternity, paternity, SPL)


Sick pay

Value of salary sacrifice schemes

Area allowances (e.g. London)

Benefits in kind

Shift premia

Redundancy pay

Bonus/incentive pay received and earned in the pay period including piecework and commission

Arrears of pay

Other pay including allowances e.g. first aider allowance and on-call allowance

Tax credits


A move by the Government towards adopting this approach could leave employers a little puzzled. Excluding overtime for example, but including on-call allowance, which arguably would be overtime? Some would also question including shift premia but excluding overtime (which tends to be a premia for working over a certain number of hours or the weekend).

Confusing huh?

Of course, we don’t know for definite yet whether Government will adopt this approach. They could just require employers to report on basic pay. However, given employers are going to have to report their gender pay gap and then also their bonus gender pay gap, it seems unlikely that they would ask employers to report on basic pay alone.

There is then of course the question, so what is a bonus for the purpose of the separate gender pay gap reporting on bonuses? Well…..let’s save that for another time.


Head of Education & Skills Policy

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