Pay
Pay is one of the most important factors in our working life. It's a sensitive subject – the way it's handled can have a big impact on morale and productivity. The challenge for most companies is to set consistent pay levels that give value for money while rewarding workers fairly. You'll find the answers to some of the most common questions about pay below. Read more about Acas training and business solutions Online customer contact form. Let us know how we can help.
 What are pay systems?A pay system is the basis on which you're rewarded by your employer for your contribution, skill and performance. There are two main categories of pay system:
Why are there different types of pay system?Basic rate schemes are clear and tend to be job-based (i.e. the pay rate is based on the job). A grading structure may be developed through a job evaluation scheme, used to put jobs into appropriate pay grades or bands. However, you might feel that these schemes don't offer you enough incentive for increased or improved performance or quality. Incentive schemes may be individual or group based, short or long term. Individual performance may be rewarded through bonuses or commission – these schemes tend to be based on short-term incentives. Group performance may be rewarded through schemes like profit sharing and share options, which also tend to be longer-term incentives. You might be personally motivated by the chance to win larger bonuses, or inclined to identify more with your employer by the chance to own share options. What is an individual incentive scheme?Individual payment schemes include payment by results (PBR), piecework and bonuses, work measurement and appraisal and performance-related pay. Others are market-based pay (where pay is linked to what's available outside the organisation) and competency/skills-based pay, based on gaining and using additional skills and competencies. You can read more in our Advisory booklet - Pay systems . What incentive schemes are there for groups?Some organisations use pay systems based on the performance of a whole team, division, plant or even the entire organisation. Other group incentive schemes include 'gainsharing', which is a form of added-value scheme linking pay to the achievement of organisational goals; and share incentive plans, where you are either given shares directly or allowed to buy them. You can read more about these in our advisory handbook: Incentive schemes for groups.What is an itemised pay statement?All employees are entitled to an individual written pay statement at or before the time they are paid. The statement must show gross pay and take-home pay, with amounts and reasons for all variable deductions. Fixed deductions must also be shown, with detailed amounts and reasons. Alternatively, fixed deductions can be shown as a total sum, provided a written statement of these items is given to each employee in advance – or at the time – of issue of the first pay statement showing the total sum, and after that at least once a year. If there is a dispute relating to the itemised pay statement provisions, every effort should be made to resolve it in the workplace, with recourse to formal internal procedures if necessary. Only if the problem persists should it be referred to an employment tribunal. If the employment has come to an end, the reference must be made within three months of the end of the employment. For further information, see Pay statements at the Department for Business, Enterprise and Regulatory Reform (BERR) website. (opens in a new window) How much is the National Minimum Wage (NMW)?
It is important to note that these rates, which came into force 1 October 2009, apply to pay reference periods beginning on or after that date. For further information, visit the National Minimum Wage section of the BIS website (opens in a new window) or the Directgov Pay and Work Rights Helpline website on 0800 917 2368. Who is exempt from the National Minimum Wage (NMW)?The following do not qualify for the NMW:
All other workers including pieceworkers, homeworkers, agency workers, commission workers, part-time workers and casual workers must receive at least the NMW. There are no exemptions according to size of business or by sector, job or region. For further information, visit the National Minimum Wage section of the BIS website (opens in a new window) or the Directgov Pay and Work Rights Helpline website on 0800 917 2368. Can my employer make unauthorised deductions from my wages?No. The law protects you from having unauthorised deductions made from your wages, including complete non-payment. This protection applies both to employees and to some self-employed workers. There are extra protections for individuals in retail work that make it illegal for an employer to deduct more than 10 per cent from the gross amount of any payment of wages (except the final payment on termination of employment) if the deduction is made because of cash shortages or stock deficiencies. Workers who believe they have suffered an unlawful deduction from wages should take it up with their manager and/or HR/payroll department. In many cases, such action will resolve the matter, but if it doesn't, recourse may be made to formal internal procedures. Only if the problem persists should a complaint be made to an employment tribunal. When can deductions be taken from my wages?One of three conditions has to be met for an employer lawfully to make deductions from your wages or take payments from you. The deduction or payment must be:
There are exemptions from these conditions that allow an employer to recover, for example, an earlier overpayment of wages or expenses to you. You can read more about this at the BIS website. (opens in a new window) What are pay systems?A pay system is the basis on which you reward workers for their individual contribution, skill and performance. There are two main categories of pay system:
For more about selecting and installing pay systems, see our Advisory Booklet, Pay systems. (See our Advisory booklet - Pay systems ) Why have different types of pay system?Basic rate schemes are clear and tend to be job-based (i.e. the pay rate is based on the job). A grading structure may be developed through a job evaluation scheme, used to put jobs into appropriate pay grades or bands. However, these schemes may not offer enough incentive for increased or improved performance or quality. Incentive schemes may be individual or group based, short or long term. Individual performance may be rewarded through bonuses or commission – these schemes tend to be based on short-term incentives. Group performance may be rewarded through schemes like profit sharing and share options, which also tend to be longer-term incentives. Both approaches can have their downsides: for instance, profit-sharing may not provide as much individual incentive but can help generate a long-term interest in the organisation's success. When are basic rate pay systems appropriate?Basic rate schemes are clear and relatively simple to administer, allowing labour costs to be forecast accurately. They lead to pay stability and may mean fewer disputes and individual grievances than systems linking pay to performance and results. They are likely to be particularly appropriate where:
What incentive schemes are there for individuals?Individual payment schemes include payment by results (PBR), piecework and bonuses, work measurement and appraisal and performance-related pay. Others are market-based pay (where pay is linked to what's available outside the organisation) and competency/skills-based pay, based on gaining and using additional skills and competencies. Some advantages of these systems are that employees often feel them to be fair as they clearly reward people according to their contribution, they are a tangible way of recognising achievements, and workers may understand the performance imperatives of the organisation better. Difficulties may arise where measurements of individual performance are too broad or lack objectivity or consistency. In the case of PBR schemes, workflow may fluctuate through no fault of the individual or targets may be set inaccurately – and the most skilled workers may end up on more difficult and potentially less rewarding work, which can be demotivating. You can read more in our Advisory booklet - Pay systems . What incentive schemes are there for groups?Some organisations use pay systems based on the performance of a whole team, division, plant or even the entire organisation. Other group incentive schemes include 'gainsharing', which is a form of added-value scheme linking pay to the achievement of organisational goals; and share incentive plans, where employees are either given shares directly or allowed to buy them. Each of these approaches has separate advantages and disadvantages. You can read more about these in our Advisory booklet - Pay systems . How much is the National Minimum Wage (NMW)?
It is important to note that these rates, which came into force 1 October 2009, apply to pay reference periods beginning on or after that date. For further information, visit the National Minimum Wage section of the BIS website (opens in a new window) or the Directgov Pay and Work Rights Helpline website on 0800 917 2368. Who is exempt from the National Minimum Wage (NMW)?The following do not qualify for the NMW:
All other workers including pieceworkers, homeworkers, agency workers, commission workers, part-time workers and casual workers must receive at least the NMW. There are no exemptions according to size of business or by sector, job or region. For further information, visit the National Minimum Wage section of the BIS website (opens in a new window) or the Directgov Pay and Work Rights Helpline website on 0800 917 2368. Are employees protected from unauthorised deductions from their wages?Yes. The law protects individuals from having unauthorised deductions made from their wages, including complete non-payment. This protection applies both to employees and to some self-employed workers. There are extra protections for individuals in retail work that make it illegal for an employer to deduct more than 10 per cent from the gross amount of any payment of wages (except the final payment on termination of employment) if the deduction is made because of cash shortages or stock deficiencies. Workers who believe they have suffered an unlawful deduction from wages should take it up with their manager and/or HR/payroll department. If this doesn't resolve the matter, recourse may be made to formal internal procedures. Only if all else fails should a complaint to an employment tribunal be considered. When can I make deductions from wages?One of three conditions has to be met for you to lawfully make deductions from wages or take payments from a worker. The deduction or payment must be:
There are exemptions from these conditions which allow you to recover, for example, an earlier overpayment of wages or expenses to a worker. You can read more about this on the Businesslink website page "Pay - an overview of obligations". (opens in a new window) What is an itemised pay statement?All employees are entitled to an individual written pay statement at or before the time they are paid. The statement must show gross pay and take-home pay, with amounts and reasons for all variable deductions. Fixed deductions must also be shown, with detailed amounts and reasons. Alternatively, fixed deductions can be shown as a total sum, provided a written statement of these items is given to each employee in advance – or at the time – of issue of the first pay statement showing the total sum, and after that at least once a year. A dispute relating to the itemised pay statement provisions may be referred to an employment tribunal by either an employer or an employee. If the employment has come to an end, the reference must be made within three months of the end of the employment. Further informationAdvisory bookletAdvice leafletAdvisory handbookOther Sites
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