Paying staff

[Newchodge]

I have been doing some research recently on how people are paid. The reason for this was some work I did with a manufacturing company in which the manual staff were paid weekly, based on the actual number of hours worked while supervisory staff, office staff and management were paid monthly, based on an annual salary divided by 12 and paid towards the end of the month, covering the entire month. I am aware that this is very common in manufacturing.

The company was having financial trouble and some non-manual staff were laid off and the remainder were put on a 4 day working week. This created a number of problems as the changes did not happen on the 1st of the month, so pay had to be calculated.

One of the staff was laid off after working 2 days of the new month. At the end of the month the payroll department insisted that he was entitled only to the lay off guarantee pittance and nothing for the 2 days worked. They based this decision on the fact that he had been paid 1/12th of his annual salary every month for 6 months, but his actual working hours had been less than 1/2 of his annual hours so he wasn't entitled to any more.

How do people on here calculate a leaver's final salary if they have received equal monthly payments and are leaving mid-year but on the last day of the month? Do any of you agree with the payroll department's decision?

 

[Ziggy2024]

I understand the technical argument there but it sounds like the employer prevented the employee from performing the hours by reducing their days. In that case I would pay the 2 days (which can't be excessive, surely?).

Maybe I'm too soft though? I suppose if you're trying to save as much cash as possible then payroll are doing a good job!

 

[WaveJumper]

As a slight aside to this issue is this a trend you have come across in other sectors for 2025 ie manufactures or anyone else for that matter reducing staff etc

 

[Newchodge]

I understand the technical argument there but it sounds like the employer prevented the employee from performing the hours by reducing their days. In that case I would pay the 2 days (which can't be excessive, surely?).

Maybe I'm too soft though? I suppose if you're trying to save as much cash as possible then payroll are doing a good job!

I think it may also be in breach of NMW as, although the salary was a reasonable amount more than NMW, they worked for 2 days for which they were not paid. They followed my advice and paid.

It got me thinking though about annual salary paid monthly. The big problem is that the wage is a constant figure , but the amount of time worked each month varies considerably. So I did a calculation, based on a Monday to Friday 9 to 5 7 hours/day employee, paid £28,000 per year. Starting in April 2024 there were 52.2 5-day weeks, 2 months had 20 days, 3 had 21, 3 had 22, 4 had 23.

So I calculated the amount of pay earned in each period compared with the amount paid. I got the amount earned by getting the hourly, daily, weekly and monthly rate by dividing 28000 by the relevant figure. The first issue is that 28000 does not divide evenly by 12 - 2,333.33 recurring. That is ISSUE 1

The amount earned each month varies between 2,145.59387 and 2,681.992337. That is ISSUE 2

I also calculated the amount paid compared with the amount earned on a monthly and cumulative basis. The, for me, is the big 1 ISSUE 3.

Issues in the next post.

 

[Newchodge]

As a slight aside to this issue is this a trend you have come across in other sectors for 2025 ie manufactures or anyone else for that matter reducing staff etc

Not yet. although my sample size is small. This particular company had fairly extreme issues, within their sector the issues weren't unusual, but the extent here was, I hope unusual.

 

[Newchodge]

ISSUE 1 Rounding

Most annual salaries are expressed as a very round figure, and I don’t think I have ever seen an annual salary that included a figure smaller than 50 in the last 2 whole digits, so, perhaps 32,750.00. Few will be exactly divisible by 12 so there will always be rounding issues. In this case the issue appears tiny – the employee is either underpaid £0.04 or overpaid £0.08 per year.

Insignificant, of course, but an employer with 100,000 employees could gain £4,000 or lose £8,000 per year. No one ever seems to adjust the payment by £0.01 every third month, which would resolve this.

ISSUE 2 How much is a day’s or an hour’s pay?

There is a frequent need to calculate pay for periods shorter than a month. For example someone may take a half day’s unpaid leave or be off sick when they only get SSP, or work paid overtime for a number of hours. Or start mid-month or leave mid-month.

Amazingly there is no legal definition of how to do this. The recommendation is that whatever system you use you must be consistent and use if for deductions as well as additions.

Many people use the simplest method. Take the monthly pay and count the proportion of work days they are present, or absent, and apply that to the standard monthly figure. But it means an hour or a day is worth different amounts in different months. If you take 5 unpaid days in June 2024, when there were 20 working days, you would lose 25% of the monthly salary - £583.3325 (rounding again). Take the same period off in July 2024 (23 working days) and you would lose £507.2456****.

Employees tend not to understand this variation and can be quite unhappy about it.

ISSUE 3 The BIG one.

My initial interest was piqued because my client did not want to pay an employee who worked 2 days in a month because, they claimed, they received equal annual payments and had already received more than the hours worked. The chart below shows the monthly amount earned, how it differs from the amount paid, and the cumulative effect.

	Apr-24​	May-24​	Jun-24​	Jul-24​	Aug-24​	Sep-24​
Days x day rate	2360.15​	2467.43​	2145.59​	2467.43​	2360.15​	2252.87​
Monthly pay	2333.33​	2333.33​	2333.33​	2333.33​	2333.33​	2333.33​
Difference	-26.82​	-134.10​	187.74​	-134.10​	-26.82​	80.46​
Cum difference	-26.82​	-160.92​	26.82​	-107.28​	-134.10​	-53.64​

Oct-24​	Nov-24​	Dec-24​	Jan-25​	Feb-25​	Mar-25​	Total​
2467.43​	2252.87​	2360.15​	2467.43​	2145.59​	2252.87​	28000.00​
2333.33​	2333.33​	2333.33​	2333.33​	2333.33​	2333.33​	28000.00​
-134.10​	80.46​	-26.82​	-134.10​	187.74​	80.46​	0.00​
-187.74​	-107.28​	-134.10​	-268.20​	-80.46​	0.00​

If you calculate someone’s last month’s pay based solely on the date in the month when they leave, then you have to hope they leave in January as they will have been underpaid by £268.20. The employee only wins out, to the tune of £26.82 if they leave in June.

Note: If anyone would like to see the full spreadsheet, just let me know and I will send you a copy. (Despite being a Mod on here I cannot work ou how to upload a file!)

Discussion on why this matters to follow, if anyone is still with me.

Funy isn't it, how bored you can get over the Christmas holidays.

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[MikeJ]

Apropos nothing, at one point we were paying a member of staff their monthly salary based on the annual salary divided by 10, rather than 12. We only noticed when we came to give them a pay increase, and their correctly calculated gross salary was lower than before the increase.

 

[Newchodge]

Apropos nothing, at one point we were paying a member of staff their monthly salary based on the annual salary divided by 10, rather than 12. We only noticed when we came to give them a pay increase, and their correctly calculated gross salary was lower than before the increase.

Ouch. Was that just for one year?

 

[eteb3]

Interesting and I can’t answer your query. But when I worked on a salary part time pro rata I remember meticulous calculations of holiday entitlement, which accrued day to day, and I seem to remember a similarly meticulous calculation of pay when I left - I got a nasty deduction which I challenged but was adequately explained when I did. Can’t recall details.

It seems to me it may all turn on the wording in the contract: “Your salary is £24,000pa paid monthly in arrears” would seem to imply that the salary is for a year’s worth of work, the year being divisible into a definable number of workdays. So I think your client may have been on safe ground.

A contract that reads “Your salary is £2000 monthly” may be a different story.

 

[Newchodge]

Interesting and I can’t answer your query. But when I worked on a salary part time pro rata I remember meticulous calculations of holiday entitlement, which accrued day to day, and I seem to remember a similarly meticulous calculation of pay when I left - I got a nasty deduction which I challenged but was adequately explained when I did. Can’t recall details.

It seems to me it may all turn on the wording in the contract: “Your salary is £24,000pa paid monthly in arrears” would seem to imply that the salary is for a year’s worth of work, the year being divisible into a definable number of workdays. So I think your client may have been on safe ground.

A contract that reads “Your salary is £2000 monthly” may be a different story.

The table in post #6 shows that anyone starting work at the beginning of April and leaving at the end of any month except June will be substantially underpaid. Which is a huge issue if someone in on NMW.

Most contracts state something like your salary is £28,000 per annum paid monthly in arrears on the x day of each month. Nothing there to state that is is paid in equal amounts each month, but also nothing to give the employer the right to change the equal monthly instalments because of hours or days worked to date when you leave.

 

[eteb3]

anyone starting work at the beginning of April and leaving at the end of any month except June will be substantially underpaid. Which is a huge issue if someone in on NMW.

Right: so they should have an adjustment in their favour if they leave mid-year. (Sorry, I may have misunderstood the maths for your original manufacturer case)

your salary is £28,000 per annum paid monthly in arrears on the x day of each month. Nothing there to state that is is paid in equal amounts each month, but also nothing to give the employer the right to change the equal monthly instalments because of hours or days worked to date when you leave.

I was trying to say, I think the core term is the annual salary, with the monthly reference a matter of mere administration. In effect it amounts to “you can’t complain if you’re up or down a bit at the end of the month, over the year it’ll even out”.

That being my interpretation, I don’t think the contract needs to give power to ER to adjust on leaving: it’s implied in the core term “your salary is £X pa”.

 

[MikeJ]

Ouch. Was that just for one year?

Yes. Possibly less than a year, as I seem to recall they joined part way through the year. We let them keep the money, but corrected the salary going forward.

 

[Newchodge]

Right: so they should have an adjustment in their favour if they leave mid-year. (Sorry, I may have misunderstood the maths for your original manufacturer case)

No, you understood, although I think they got their calculation entirely wrong.

Where I am coming from is that I think it is a very stupid policy to pay anyone an annual salary in equal monthly instalments. It may have been understandable when it was paid to management who weren't considered to work 'hours' buit to fulfill a role; now, however, it tends to be paid to most people and it makes no sense. Why pay the same each month when the employee does not work the same amount each month.

I would like to see the vast majority of staff have contracts for an hourly rate of pay, which can be expressed additionally as approximating to £x per annum. Then the norm is for everyone to be paid in an x-weekly format, either weekly, fortnightly or 4 weekly. All those periods ae constants so wages can be paid accurately. It solves a number of problems, including NMW certainty, ease or pro-rataing and accounting for additional or fewer hours.

I know there may be resistance at first from employees who have their monthly bills set up, but if this were the norm all suppliers would move to 4-weekly payments without issue (indeed I think most already do this).

How would employers see this?

 

[Ziggy2024]

I completely understand where you are coming from but I don't think it will ever happen.

The majority of employees simply won't understand, you will know yourself the chaos when a tax code changes! Having a set amount at the top of the payslip is simple.

For the employer - cashflow and budgeting is at the forefront. It's not about short-changing the employee.

You are of course correct about the problems with starters and leavers but I don't think most employees would be happy with fluctuating wage payments for a salaried role. I certainly wouldn't.

 

[Jeff FV]

Many years ago, when I was a (very) young man in the RAF we used to get paid a daily rate, monthly in arrears, so, for example, on 31st Jan you would receive x31 your daily rate. At the end of September you’d get x30 your daily rate. Made things simple for when your pay changed due to, say, promotion (and, iirc, you got seniority pay increments annually (up to a certain level) even if you didn’t get promoted). Plus you often got different allowances for certain postings - ie when posted to Germany I got an additional overseas allowance on top of my daily rate of pay

However, March was always a tough month - at the end of Feb you’d be paid for 28 days, but not get paid again until 31 days later at the end of the month. I vaguely recall that around the time I left the RAF they were thinking of moving to twelve monthly equal payments, but not sure if they ever did.

Fast forward to now, as an old man I find myself regularly thinking about (fantasying about!!) giving up my current role as a teacher (either to retire or do something else) - as a teacher it makes no (financial) sense to leave the profession at any time other than the end of the summer term as you will then be paid for the whole summer holidays. Leave at Easter (or even worse, any half term or during term time) and you will lose out financially. (

 

[Newchodge]

I completely understand where you are coming from but I don't think it will ever happen.

The majority of employees simply won't understand, you will know yourself the chaos when a tax code changes! Having a set amount at the top of the payslip is simple.

For the employer - cashflow and budgeting is at the forefront. It's not about short-changing the employee.

You are of course correct about the problems with starters and leavers but I don't think most employees would be happy with fluctuating wage payments for a salaried role. I certainly wouldn't.

There wouldn't be fluctuating amounts if payment were made every 4 weeks, as that is a constant period for which those whose hours don't fluctuate would receive both a uniform amount AND the amount they had earned.

I looked at the alternative of 12 monthly payments based on 4,4,5 weeks, so every third payment would be 25% higher. That would also mean accurate payment but it would mean fluctuating payments which I think we should avoid.

 

[Ziggy2024]

There wouldn't be fluctuating amounts if payment were made every 4 weeks, as that is a constant period for which those whose hours don't fluctuate would receive both a uniform amount AND the amount they had earned.

Having been paid 4 weekly I can confirm that everybody hates it. Not one person that I know of is OK with getting their salaries at different points of the month. Set pay day each month and a set amount at the top of the payslip is the comfort zone.

Of course, it could just be getting used to it as we are averse, as a species, to change. It would have to be the norm rather than the exception but I think we are too ingrained in the status quo. It would take a massive change of mindset.

I think it is a noble cause that you are suggesting but I'm sorry to say that I don't think we are ready for it.

 

[Newchodge]

Having been paid 4 weekly I can confirm that everybody hates it. Not one person that I know of is OK with getting their salaries at different points of the month. Set pay day each month and a set amount at the top of the payslip is the comfort zone.

Of course, it could just be getting used to it as we are averse, as a species, to change. It would have to be the norm rather than the exception but I think we are too ingrained in the status quo. It would take a massive change of mindset.

I think it is a noble cause that you are suggesting but I'm sorry to say that I don't think we are ready for it.

Thanks you. I think you are probably right. Although I would point out that the state pension is paid every 4 weeks.

 

[eteb3]

I would like to see the vast majority of staff have contracts for an hourly rate of pay

I can see the logical upside. A downside would be people thinking primarily in hourly terms. On a salary, everyone hates doing unpaid overtime, and there's definitely a cost to goodwill for the employer - but that can be mended in other ways, or compensated for with an early finish next BH.

My experience of being paid hourly is you become massively transactional. That's fine if the employer is ok with it - menial work where I could be easily substituted was where I experienced it - but most jobs need a relationship, and some give and take, which thinking monthly allows for.

Even your leaver's adjustment is measured in days, not hours.

 

[Newchodge]

I can see the logical upside. A downside would be people thinking primarily in hourly terms. On a salary, everyone hates doing unpaid overtime, and there's definitely a cost to goodwill for the employer - but that can be mended in other ways, or compensated for with an early finish next BH.

My experience of being paid hourly is you become massively transactional. That's fine if the employer is ok with it - menial work where I could be easily substituted was where I experienced it - but most jobs need a relationship, and some give and take, which thinking monthly allows for.

Even your leaver's adjustment is measured in days, not hours.

I can understand salary for senior management, whose roles tend to be defined in tasks, but for less senior members of staff I think it has become a bit automatic. A cleaner working 3 hours per day, twice a week, paid in equal monthly amounts is a bit of a nonsense and done purely for the employer's convenience. And, as I say, for those paid at or near minimum wage there is a very real danger of their being criminally underpaid, without knowing.

I realise this is not going to happen, but with time off over Christmas I got to thinking about what I would like to see, and this was the result.

Incidentally, the leaver's adjustment is expressed in days in my example, but the figures would be the same if calculated in hours or weeks.

 

[DontAsk]

Workers have had their benefits stopped in the past due to being paid twice in one calendar month, leading the DWP system to see a doubling in salary, which is bound to happen with 4 weekly pay.

Has the benefits system been fixed for this?

 

[Newchodge]

Workers have had their benefits stopped in the past due to being paid twice in one calendar month, leading the DWP system to see a doubling in salary, which is bound to happen with 4 weekly pay.

Has the benefits system been fixed for this?

No. Universal Credit is the only benefit that takes into account calendar monthly income rather than weekly income, so it suffers from the same problem of making a constant payment for a variable period of time.

If my proposal were to become the norm (a pipe dream, I know) UC would have to be modified. The fact it hasn't already been modified is a scandal.