National Minimum Wage Expensive Errors
The complexities surrounding the National Minimum Wage (NMW) regulations for employers can tie you up in knots. The repercussions if the employer gets it wrong can be significant as HMRC look to take action against ‘errant’ employers. This action can result in HMRC:
● Demanding settlement of arrears going back up to 6 years or 5 years in the case of Scotland.
● Imposing penalties of up to 200% of the employer’s underpayment.
● The Government can then name and shame those employers who have failed to comply which can damage the reputation of the businesses concerned.
What are the common errors made?
● A failure to keep proper records. Simple administrative errors such as using the wrong date of birth, resulting in the incorrect level of NMW being paid.
● A failure to take account of the increase in the NMW rates which tends to happen on 1st April each year.
● Treating time based employees (for example hourly paid) as salaried workers. So for NMW purposes a salaried worker’s annual pay is averaged over each pay period equally. So it doesn’t matter how many hours that employee works each month, whilst it does for a time worker. For example, if a worker is paid monthly for the actual hours worked, sometimes the pay entitlement might be based upon a 4-week month other times a five-week month. The pay should therefore vary to reflect that.
● If an employer operates a salary sacrifice scheme and the salary the worker has given up takes them below the NMW that is also a breach of the regulations.
● If the worker is required to pay for their own uniform. You often find this in the hospitality and retail sector. For example, restaurants and hotels may require staff to wear black trousers, black shoes and a white shirt. If the employee incurs the cost then this is taken off his or her pay before working out whether or not the employer has been NMW compliant.
● Tips, gratuities, and benefits in kind, employer loans, premium pay rates (for example being paid extra for working the night shift) don’t count as part of the NMW.
● Time spent by a worker on an induction course or trial shifts (in some cases), training time, team debriefs, security checks should also benefit from the NMW. Failure to do so could result in the employer being in breach of the NMW regulations.
● If the employer provides accommodation to the worker free of charge, then the maximum ‘cost’ the employer can count towards the NMW is what’s known as the accommodation offset allowance which is £7.55 per day (£52.85 a week). If the employer charges for accommodation then any amount he charges over the offset allowance limit is treated as a reduction in pay prior to working out whether or not the worker has been paid at least the NMW.
These are just some of the multitude of areas where employers have fallen foul of the minimum wage test resulting in some painful underpayments, penalties and negative press. If you are an employer who may be concerned that you are not paying across the legal minimum, we will be happy to have a conversation with you. Call us on 01484 685413 or email firstname.lastname@example.org
It is important to remember that the National Living Wage, which the Government introduced in April 2016, for workers aged 25 years or more, is also caught by the NMW regulations. This sometimes gets mistaken for the Real Living Wage which is set at a higher hourly rate and is entered into voluntarily by some employers.