• Date

    23 Jun 2023
  • Category

    HR Consultancy Services

The common National Minimum Wage ‘mistakes’ to be aware of

In June 2023, 202 employers have been named by the Government for failing to pay appropriate staff the legal minimum wage. Collectively they were found to have failed to pay their workers almost £5 million in a clear breach of National Minimum Wage (NMW) law, leaving around 63,000 workers out of pocket.

The identified companies range from major high street brands to small businesses and sole traders, in a clear message from Government that no employer is exempt from paying their workers the statutory minimum wage.

The NMW rates are reviewed every year and the April 2023 increase represented one of the biggest hikes to the rates, leaving many small employers struggling to pay at the legal minimums.

Nevertheless, the majority of the underpayments are unintentional, raising a clear worry for smaller businesses that they may fall in the same traps as the bigger employers. If big businesses can get caught out, how can small companies ensure they are being compliant and paying everyone appropriately?

We look at the common top 10 mistakes that lead to NMW underpayment:

  1. New rates are missed

The number one reason for underpayment is failure to apply the annual minimum wage rate increase as they go up each year on 1 April. The new rates are usually known well in advance and there should be no excuse if an employer misses these increases.

  1. Birthdays are overlooked

The National Minimum Wage regulations are complex. To start with there is not just one rate, instead we have five separate rates for four different age brackets and for apprentices. Missed birthdays as employees turn 18, 21 or 23 years old and move from one NMW rate to another are often a cause of underpayments.

  1. Apprentice rates are paid for too long

Confusingly, not every apprentice can be paid the apprentice rate and paying the apprenticeship rate incorrectly accounted for 21% of the employers named as underpaying their staff. Apprentices can only receive the reduced apprenticeship rate (currently £5.28 per hour) if they are under the age of 19. If they are older they can only be paid at the apprentice rate in their first year of apprenticeship. Continuing to pay the apprentice rate for too long is another common mistake.

  1. Misuse of the apprentice rate

Staying with the apprentice route, another common problem is paying the apprentice rate to somebody who isn’t actually an apprentice. Recognised apprentices must be engaged under a contract of apprenticeship (or an apprenticeship agreement) and undergo an element of structured training. Simply labelling someone as an “apprentice” will not put them in the apprentice category for NMW purposes.

  1. Not paying for working time

39% of the employers named in June 2023 as having failed to pay NMW were reported to not pay appropriately for working time. While concerning, it is sometimes difficult to determine which time must be paid. For example, time spent travelling, training, downtime at the employer’s disposal, sleep-ins and on-call time. Categorising time as “working” or “not working” is often not very straightforward and anyone wanting to make the correct decision would have a lot of case law to consult.

  1. Not paying for additional time

Related to the above, the NMW underpayment will often occur if the employer is not paying for additional time worked, such as time spent clearing security checks once a worker’s shift has finished, if this is a mandatory part of the working day; the same will apply for clocking in/out.

  1. Including payments that don't count towards NMW

Another common mistake is including elements of pay that don’t count towards minimum wage. This includes for example tips, shift premiums, overtime payment, expenses reimbursements, advances of wages.

  1. Deductions

Another 39% of the employers named and shamed for the NMW underpayment found themselves in that position because of the deductions made from the employees. This means the workers were correctly paid, but then deductions were made for various reasons, bringing the average hourly pay under the NMW. Making deductions for items or expenses that are connected with the job will always reduce NMW pay. This could include, for example, safety clothing, uniforms, safety boots, tools etc. Where there is a requirement by the employer for the employee to obtain/provide equipment for their job, pay will be reduced for minimum wage even if the workers purchase themselves from a third party.

  1. Accommodation offset

Charging a worker more than the stated offset rate for living accommodation will land employers in trouble as well. Where appropriate, deductions for accommodation will count towards the NMW calculations where they are made from net pay, gross pay, or even directly to the employer from the employee’s bank account. Where the deductions are higher than the offset rates, then the difference is taken off the worker’s pay for NMW purposes. This will depend on what type of accommodation is provided and personalised advice should be sought if accommodation is provided.

  1. Mistakenly exempt from NMW

Finally, we will sometimes see employees mistakenly considered to be exempt from NMW and underpaid as a result. Certain groups of workers will be exempt and this includes members of the armed forces, some company directors and ‘office holders’, those on certain Government schemes and voluntary workers if broadly they receive no monetary payments or benefits in kind, other than reimbursement of actual, reasonable expenses. Most exemptions are not straightforward and advice should be sought before paying anyone under the NMW rates or not paying them at all.

We are here to help

If you have any questions in relation to National Minimum Wage compliance or would like to discuss your specific business circumstances, please get in touch with a member of our specialist team or your usual Azets advisor.

About the author

Andreja Okamgba Photo

Andreja Okamgba

Senior HR Consultant Maidstone
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