HMRC is running regional campaigns to ensure that employers are meeting their National Minimum Wage (NMW) obligations. The current regions under scrutiny are Merseyside and the North East of England, but it is likely that HMRC will move onto other regions, particularly if they uncover problems.
With significant increases in the NMW rate and complex rules relating to entitlement, the consequences of getting this wrong can be extremely expensive as well as embarrassing for a business. If errors are detected, any shortfall is payable to the employee at the current rate, not the lower rate applicable at the time the work was performed. The additional pay due could easily be 30% higher than the amount originally underpaid. Add to this a 200% penalty to HMRC and public naming and shaming as a NMW defaulter for most employers that get this wrong, regardless of whether underpayments are deliberate or accidental, and it is easy to see why businesses should take this seriously.
It is therefore essential that businesses understand the rules, categorise their employees correctly and are certain that actions they take do not trigger defaults.
The most common causes of default, assuming deliberate underpayment is not a factor, are:
- Applying the wrong rate of NMW based on employee age (i.e. not adjusting on an employee’s birthday or not appreciating that the full rate now applies to younger employees than previously).
- Applying the apprenticeship rate inappropriately.
- Treating an employee as “salaried” when all the conditions for this treatment are not met.
- Salary sacrifice or other deductions from pay triggering NMW defaults.
- Payments to interns and volunteers that bring the worker within scope of NMW.
What should you do?
Regular reviews should be undertaken to ensure you are:
- Applying NMW to workers as well as full employees.
- Paying the appropriate rate of NMW based on age of the worker because if you get this wrong you will have a problem.
- Applying the correct rate for apprentices. Do they meet the criteria for the reduced rate? Have you switched them onto the correct age-related full rate at the right time?
- Correctly classifying all workers between “time worker”, “output worker”, “salaried worker”, or “other”? Salaried workers are the only category that allow some “smoothing” between pay periods, but incorrectly treating an employee as “salaried” could result in required checks not being undertaken and defaults undetected.
- Applying the maximum offset appropriately if you are providing accommodation to workers.
- Not allowing workers to sacrifice their pay below NMW levels.
- Not making deductions from either net pay or gross pay that reduce pay below NMW.
- Keeping appropriate records to present to HMRC if they open a review.
Menzies can assist in helping to ensure you are compliant so if you have concerns or questions, please get in touch with Andrew Brookes, or contact us below:
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