Pay and pensions changes: What farm employers need to know

Many farm employers will be carrying out wage reviews to take effect from the beginning of October, and there are three important changes to be aware of:

• The national minimum wage (NMW) will increase to £6.70/hour from 1 October 2015. This has been compulsory for all farm employees in England and Wales since the abolition of the Agricultural Wages Board (AWB) in 2013.
• The national living wage (NLW) will replace the NMW from 1 April 2016. This is set at £7.20/hour for those aged over 25 and will be compulsory.
• All employers will have to sign their employees up to an auto-enrolment pension scheme (see “How auto-enrolment” works, below).

George Chichester, partner at Strutt & Parker says wage increases for farmworkers have generally exceeded those in other sectors because they were rising from a low base.

“Gradually they have been catching up with other sectors – especially when perks such as the usual provision of no- or low-cost accommodation are taken into account.

How auto-enrolment works

This compulsory pension requirement means employers will have to sign up their staff to a pension scheme.

Employers using Paye will have received a letter with their start date from HMRC or can check their date with the Pensions Regulator using their Paye number.

Up to September 2017 the minimum contribution is 2% of qualifying gross earnings – with at least 1% from the employer.

©Cultura/Rex Shutterstock

From October 2018 employers will have to contribute at least 3% of gross earnings and the worker will have to contribute 4%. HMRC will contribute the equivalent of 1% in a tax refund.

Qualifying earnings include a worker’s salary, wages, overtime and bonuses.

Workers will qualify for the scheme if they receive pay in excess of the minimum Paye threshold (£9,440 for 2013-14); are aged between 22 and state pension age; and work in the UK.

“There must come a time when the rate of increase should slow, to mirror that in other sectors.”

Wage negotiations

Richard Means, Partner, Strutt & Parker

What level of wage increase are you proposing to your clients?

Strutt & Parker is recommending to clients that they take into account the new auto-enrolment pension scheme when reviewing pay and that they apply a 2% rise in total for the coming year – 1% as an increase in wages and 1% paid into the pension scheme.

Any extra individual remuneration employers might want to pay can be made via a discretionary bonus at the end of the year.

The effect of the recommended increase would be as follows (£/hour from 1 October 2015):

• AWB grade 1 equivalent £6.70 (same as NMW)
• AWB grade 2 equivalent £7.32
• AWB grade 3 equivalent £8.06
• AWB grade 4 equivalent £8.64
• AWB grade 5 equivalent £9.15
• AWB grade 6 equivalent £9.89.

However, this is an individual decision and, subject to the statutory NMW, has to follow the performance and health of the business. Can it support a pay increase this year? Does the ability and potential of the employee justify a higher package?

How can employers conduct a simple pay review?

For 2015 this is just a case of updating and using figures from the abolished AWB. While the majority of businesses have an October review date in line with previous arrangements, that is not the case for all businesses.

How should the process be managed?

Pay reviews should be conducted annually before the review date with a note of the rationale behind the figures for that particular review.

Every farm business has employees on a variety of different packages, which can include accommodation and other benefits. Therefore, each individual needs to be treated accordingly.

How should employers consider the NLW proposed for 2016?

This is still under government consultation until 25 September 2015.

If an employer is in a position where this will affect them, then it would be sensible to have a six-month review and realign everything from April 2016, should the NLW be brought in.

Rates should be based on an employee’s capabilities and not on any flat-rate schedule.

It may well be that employees are paid the same amount because they do similar roles, but this should be a conscious decision and not the default position.

What about salaried staff?

The NMW will still apply for salaried staff and the regulations state that this should be calculated to ensure that they are not unfairly paid.

What else should be considered in a wage review?

The farming industry is becoming more and more technologically advanced and employees are embracing this.

The ability to make the most of this technology is valuable to a farm business and as such this should be reflected in employees’ remuneration. However, attention to detail and getting the job done well are still the main priority.

What about pay reviews for managers?

There are now varying management roles and responsibilities being shared around a team and not necessarily all being done by one individual.

So for example, where a sprayer operator has the responsibility of liaising with the agronomist and ordering all of the pesticides and fertiliser, this should be reflected in the remuneration.

How should accommodation be taken into account?

A farm cottage in Berkshire will obviously be more valuable in monetary terms than a similar cottage in the middle of the Lincolnshire Fens.

However, both properties would be fundamental for a role and if an employee is not provided with accommodation, then correspondingly the wages or the salary would have to be higher in areas of higher residential value.

Government changes

Louise Lawrence, Senior associate, Winkworth Sherwoood (lawyers)

The new NLW will effectively introduce an additional tier into the national minimum wage (NMW) system for workers over 25 years old. The current NMW for workers under this age will continue to apply.

The NMW rates, which will apply from 1 October 2015, are as follows:

• Adult rate will increase by 20p to £6.70/hour
• Rate for 18- to 20-year-olds will increase by 17p to £5.30/hour
• Rate for 16- to 17-year-olds will increase by 8p to £3.87/hour
• Apprentice rate will increase by 57p to £3.30/hour.

The Low Pay Commission will recommend any future rises to the NLW and is currently consulting about the rate to apply from April 2017.

The government has said it will aim to increase the NLW to 60% of median earnings by 2020, expected to reach more than £9 by 2020.