National Minimum Wage compliance
National Minimum Wage (NMW) compliance is essential to ensuring businesses avoid legal penalties, protect their reputation, and ensure fair treatment of employees.
Under the National Minimum Wage (NMW) act 1998, workers in the UK are entitled to be paid a minimum amount per hour with the amount corresponding to their age. From April 2024, the higher hourly rate (National Living Wage) was extended to include workers aged 21. However, compliance with NMW is much more complex than simply paying the set rate.
NMW compliance requires an employer to have a robust control process which considers all of the different components which make up the calculation.
In many instances, there’s a complex calculation required in order to ensure the necessary pay level is met. As an example, a worker could be paid in excess of £40,000 yet the business has inadvertently not paid NMW.
Yes, there are currently four main strands of HMRC enforcement, with the latest enforcement consisting of HMRC targeting employers as part of a 3 stage process in a specific geographic region.
HMRC also regularly engages with workers via social media/text/letter campaigns, encouraging workers to check their pay records and whistle blow to ACAS or direct to HMRC.
There is no de-minimis for NMW enforcement and the potential consequences of getting NMW/NLW wrong is a 200% penalty and reputational risk due to the Government’s regularly published list of businesses who fail to pay their staff the required minimum wage rate. The penalty is on top of payment arrears to the worker, additional employer pension contributions and employer National Insurance costs. As such, the financial impact can be significant - meaning careful management is required.
With ever increasing HMRC enforcement activity, it is becoming a complex operation for a business to ensure compliance with the rules that ultimately depend on the worker’s specific circumstances.
With each public naming round, the Government publishes a bulletin outlining the main cause of NMW arrears in that round. The latest one can be found here.
Based on our experience of supporting employers with navigating enquiries, the following ten areas are commonly scrutinised by HMRC:
1. Unpaid additional hours worked by salaried workers. The level required for compliance is much higher due to the excess hour rules.
2. Unpaid additional hours worked by other types of workers. This could include handover meetings prior to shift, changing into uniform, logging on/getting equipment ready for start of shift etc.
3. Salary sacrifice reductions taking a worker’s pay below NMW.
4. Other deductions reducing a worker’s pay below NMW. For example, clothing required to be worn at work, savings clubs, canteen deductions, security/tool bonds, accommodation deductions, reimbursement of private mileage etc.
5. Clocking in systems. Queues at machines or a machine located the other side of a factory can increase the number of working hours required for NMW.
6. Rounding in the payroll system, e.g. 5/10/15 minutes due to early arrival or late start.
7. Travelling time outside of normal working hours for business purposes (not ordinary commuting).
8. Operation of a flexible time policy or time off in lieu policy. NMW legislation doesn’t account for such policies and can lead to employers inadvertently underpaying workers.
9. For example, ensuring they are paid the correct age rate in their 2nd year or ensuring all study time is paid for.
10. Work trials as part of an interview process might be working time.
1. Support your business with understanding how the NMW calculation works.
2. Help the business identify potential risk areas in order to take proactive corrective action and mitigate the risk of future penalties arising as far as possible.
3. Help your business understand how to implement effective policies, controls and procedures which not only ensure ongoing compliance with the rules but reflect the commercial needs of the business. This includes:
4. Support your business with navigating HMRC enquiries in a practical manner to reduce business time input and ensure HMRC proposed solutions are pragmatic.
5. Educate and train your employees on the NMW rules & regulations.
6. Support your payroll team or outsourced provider with running real time checks to support ongoing compliance. This includes:
7. Support with exit readiness, vendor or purchase due diligence.
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