National Minimum Wage and time off in lieu (TOIL)
National Minimum Wage and time off in lieu (TOIL)
Time off in lieu (TOIL), or “flexi time”, has become an increasingly common method adopted by employers in the drive to be more agile while striking a balance with the health and well-being of their workforce.
Overtime policies don’t suit all businesses, and some workers even prefer the flexibility to manage their workload and take time back when it better suits them. Whatever reason your business has for operating TOIL, and whether this is by a formal policy, an informal policy managed by team managers, or a mixture of the two, there is an increasing spotlight on this area from a National Minimum Wage (NMW) compliance perspective.
The spotlight on TOIL
HMRC’s ever-increasing focus on employers’ working time records inevitably means more scrutiny of TOIL arrangements.
Unfortunately, there isn’t a ‘one size fits all’ fix for managing compliance with NMW in this area. Like any working time consideration for NMW, it depends on which of the four worker categories you engage (i.e. salaried hours work, time, output or unmeasured) and the worker fact pattern. This requires a control process/records to demonstrate that at least NMW has been paid in the relevant pay reference period.
How is TOIL treated for National Minimum Wage purposes?
If we take the two most common worker types to which TOIL is likely to apply - salaried and unmeasured workers - we can broadly summarise the potential treatment as follows:
Salaried hours work
The treatment of TOIL has to be factored into the excess hours calculation, i.e. the requirement to check if the worker has exceeded their basic hours in the calculation year. If they have, the employer has to determine if an additional payment should be made to the worker to ensure that they have received at least NMW for all hours they worked in the calculation year.
There is a long list of criteria to follow to calculate excess hours, so adding in TOIL is no easy task. Not only does it require adequate records to determine what time has been worked and not paid, but the exact timing of when the TOIL is taken back is required to reconcile whether this is within the worker’s calculation year. Unless an employer has sent communications to their workforce to change the calculation year (which is a possibility under the new salaried worker rules introduced in April 2020), then typically each worker will have a different calculation year, as this varies depending on the start date of their employment.
Unmeasured worker
Under the NMW rules for unmeasured work, you are required to monitor a worker’s pay on a ‘pay period’ basis. One control method employers typically look to apply here is to ensure that any additional time a worker has worked during pay period 1 is taken back by the end of pay period 2.
However, a word of caution on this approach. HMRC’s view is that if the TOIL is not taken back in the same pay period, i.e. pay period 1, then any TOIL accrued simply becomes unpaid working time in that pay period for NMW purposes. Practically, this means that if any other payment for leave is made in pay period 2, this may prevent or mitigate an offset of the TOIL worked in pay period 1. Similarly, if there is other unpaid working time or payroll deductions that reduce NMW pay, then this would also reduce the offset for the TOIL.
Protecting your organisation
The overriding message if you are operating a TOIL policy is that record keeping is key, but more importantly, a policy control framework that reflects the NMW worker category is a necessity.
In most of the cases where a NMW underpayment arises, this is not due to deliberate action, but instead because the employer was unaware that their employee was working for the time in question. It is important that a communication and training strategy is implemented to ensure supervisors and team leaders are aware of the importance of sticking to the policy.
If this doesn’t work for your team, it’s far better that they flag internally and find another solution, than taking their own initiative to try and instigate change with the right intentions (the latter of which may lead to unfortunate consequences for NMW purposes).
If you have any questions or concerns regarding your NMW position, speak to one of our expert team, who will be happy to help.