Significantly underpaid - now what?

[Houseplantmad]

Several years ago I agreed a new job description and salary - figure x. As I work term time only this salary was to be pro-rata'd. I was given a ball park figure for the pro-rata'd salary and the new pay I received with pension contrib's etc. taken out was in this region so I didn't think any more of it. This was confirmed by letter but only the pro rata'd salary was shown in this letter.

I've recently renegotiated a new grading as my job has changed again, and this time in the confirmation letter the full time salary was shown and it is quite a bit lower than what was agreed previously, even with the recent pay rise.

There is no dispute with my boss that we agreed figure x, the issue is with HR in that they applied the incorrect full time salary at the outset and now claim it was not their error. They have now given me the formula sheet for term time only working which was completed a the time and had I been given this at the outset I would have picked it up immediately.

My boss has said it will be put right but is unsure how this can be done (we are talking in excess of £20k over the 4 years). I have checked my P60s and payslips and these have only shown the gross of the pro-rata'd salary, so I've had nothing to indicate anything was amiss otherwise.

I am concerned on several levels - I have not been paid as agreed; it has implications for my pension and HR's attitude seems to be I should have realised earlier there had been an error - I am being made to feel I am a bit stupid by them. I am also concerned if I get paid a lump sum I will be taxed heavily on it.

Any guidance on how to deal with this please?

You really need someone who has a background in payroll. I will give you my thoughts but please check with HMRC, ACAS and/or CAB before doing anything.

I am assuming you are not a higher rate tax payer, but earn more than £12,500 a year. I am also assuming you earned more than £12,500 in the years you were underpaid.

For 2021/22 tax year the thresholds are www.gov.uk/income-tax-rates:
£12,500 tax free
£12,501 to £50,270 20%.

TAX
If the £20,000 plus your salary for the 2021/22 tax year is under £50,270 you will correctly pay 20% tax. This is what you would have paid anyway.
If the £20,000 takes you over £50,270 then ask for it to be paid in two lump sums one this tax year and one in April 2022 so it forms part of 2022/23 tax year. Make sure in both years you are under the 40% tax threshold.

Child Benefit, be aware if you go over £50,000 taxable pay in any tax year you are impacted by the taper which reduces child benefit.

NATIONAL INSURANCE www.gov.uk/national-insurance/how-much-you-pay
You will also pay NI on the £20,000 and I think being paid £20,000 in one month would see a large deduction but you only pay 12% on up to £4,189 a month then 2% on anything above that. It could therefore be cost effective to have it paid as a lump sum in one month, but please check this.

OPTIONS TO REDUCE TAX
Pension: You could opt to pay a lump sum into your pension scheme. Alternatively you could by added pension. You need to check the scheme rules about the maximum amount you can contribute and the Annual Allowance. You can’t reduce NI but the pension payments reduce your taxable pay.

Childcare: if you already purchase childcare vouchers you could increase the amount which would reduce taxable pay. This doesn’t work for the tax free childcare scheme.

Salary sacrifice schemes: any such schemes your employer offers will reduce taxable pay e.g. cycle to work.

Please do get proper advice before making any decisions.

Thank you @Alpinechalet. That’s really helpful. I will contact ACAS etc. Thanks again.

OP, did you get this sorted as I have a very similar situation (underpaid for 3 years and employer washing their hands of it - their fault!). Please PM me if you prefer. It would be good to know what action can be taken.

Thank for any help you can give.