Common Pitfalls with National Minimum Wage Compliance
Key Contact: Claire Knowles
Author: Saskia Musacchio
The National Minimum Wage and the National Living Wage (collectively referred to as NMW), provide imperative protection for the lowest paid workers in society. Such measures ensure that these workers are fairly paid for their contribution to the UK economy. For more information on the current NMW rates, please see Rate Rises in April 2022 – Numbers to Know here: https://acuitylaw.com/rate-rises-in-april-2022-numbers-to-know/.
HMRC enforce the NMW and have adopted the “Promote, Prevent and Respond” approach to (i) inform employers on their obligations; (ii) emphasise the risks of a failure to comply with the NMW; and (iii) alert employers to enforcement action taken in the event of breach. Recently, HMRC has also introduced the “New Compliance Approach”, which seeks to enhance communication between HMRC and employers, and to promote self-correction.
With this in mind, below, we set out some of the common pitfalls with regards to calculating NMW and how best to avoid them:
- Taking deductions from wages – It is vital that a worker receives at least the NMW after any deductions or payments incurred by the worker in connection with their employment have been accounted for. Such expenses could include costs of uniforms, work-related equipment and accommodation costs.
- Overtime hours – Overtime (along with advances of wages and redundancy payments, to name a few), do not count towards the NMW and should always be excluded from calculations on total remuneration.
- On-call time – ACAS describes on-call employees as ‘those expected to be available for work outside of their regular hours, sometimes at short notice’. Although it is largely dependant on the employee’s contract of employment as to whether they get paid for time spent on-call and at home, for the purposes of NMW calculations, employees must be paid at least NMW for any time spent awake and working.
- Failure to increase the rate to reflect annual increase / change in age band – It is vital that employers keep a record of their workers’ dates of birth as the NMW rates are directly dependent on the age of the worker. The NMW rates are released annually in April, so we would urge all employers to review their pay rates each March to ensure compliance with the new increases.
- Failing to pay travel time – This specifically relates to business-related travel, i.e. if the worker needs to travel to attend or provide training, and not for simply daily travel between work and home. It is vital that after such deductions, the worker still receives at least NMW.
- Underpaying apprentices – As indicated above, the differing NMW rates relate to the age of the worker. It is therefore essential that employers keep an accurate and up-to-date log of their apprentices’ ages to avoid failures with NMW compliance.
Penalties for breach include paying up to 200% of the underpayment, therefore we would recommend that employers assess their internal policies, practices and approaches for any risk of non-compliance and consider how to redress any underpayments.
For more information and advice on bespoke situations, or training on NMW compliance and working time, please contact the Acuity Employment team.