Skip To The Main Content

Make sure you don't fall foul of National Minimum Wage regulations

National Min Wage_detail

Despite perceptions, employers are not always short changing their staff to save money. In reality, employers are often non-compliant with the NMW due to a series of common errors.

These errors can put employers at risk and may result in an HMRC investigation who enforce the legislation. Employers who are non-compliant face heavy fines as well as being named and shamed in a government press release.

You might think you are already paying your workers the current NMW but that does not mean you are. So what sort of things should you be looking out for?

Rates: what should I be paying?

The National Minimum Wage and National Living Wage rates increase every April – not all employers know this and do not apply the annual increases. Sometimes, employers miss the key birthdays of workers as they move from one age to band to another.

It can also be tricky with apprentices; employers can fail to apply the apprentice rates correctly according to the worker’s age, how long they have been in apprenticeship, or even if they are on a recognised apprenticeship.

If you are not sure that you are paying the right amount, you can find out more and view the current rates here.

Deductions - are you making wage deductions that take your worker’s pay below NMW/NLW rates?

There are a few things that you might be deducting from your worker’s pay; tax, national insurance, or other deductions such as student loan repayments, pension contributions or trade union subscriptions. These things are not included when calculating if you have paid your worker the NMW.

What is included are the sorts of things that are for your company’s own use or benefit. These might include deductions for tools, meals or transport that you have provided. These sorts of deductions are connected directly with his or her employment with you.
Another common error is accommodation deductions. If this is below the permitted “accommodation off-set” amount then you might be paying below the NMW. To find how to apply the off-set correctly there is guidance on the Gov.uk website.

Are you including top ups to pay that don’t count as pay for NMW/NLW purposes?

A worker’s pay for minimum wage purposes must be calculated in a particular way and some elements do not count. If you include these elements of pay incorrectly then it appears that you are paying the NMW when you are not.

You can include incentive payments or bonuses, but you must not include tips, tips, gratuities, service charges or cover charges from customers. Nor can you include overtime or shift premia payments.

You may pay your worker at a higher rate for some of the work that they do, for example for working overtime, weekend or night shifts. But if you do, this premium element of pay does not count towards their minimum wage pay.
 

Worker status errors

You must pay people who do work for you at least the minimum wage if they are a ‘worker’. Employers sometimes mistakenly treat workers as volunteers, interns or self-employed. You can use the National Minimum Wage Worker Checklist to help you decide if an employee should be classed as a ‘worker.’

Those who are genuinely self-employed are exempt from NMW legislation so it is important to make sure they are correctly labelled as self-employed. You can use the HMRC Employment Status Indicator Tool to make sure they are definitely self-employed.
 

Working time – are you including all the time your worker is working?

If not you run the risk of unpaid working time - additional hours worked but not paid. That may include those extra ten minutes helping you to shut up the shop or clearing security after their shift has ended. These short but regular periods of time should be included in their pay.

You should also include longer periods of time spent training or ‘down time’ waiting. Other working time errors can occur when employers fail to include travelling time in connection with the job. This can include your worker travelling between assignments or in connection with sleeping time.

Detailed guidance to help you avoid all of these errors can be found on the Gov.uk website.
 

The cost of getting it wrong

HMRC officers have the right to carry out checks at any time and can ask to see your payment records. They can also investigate employers if a worker complains to them. If HMRC finds that you haven’t been paying the correct rates, any arrears have to be paid back to workers immediately. There will also be a fine, currently 200% of the arrears amount, and offenders with arrears over £100 will be named by in a government press release. 

FSB’s Recommendations

● Carry out the necessary checks to make sure your business isn’t affected by these common errors.

● Use the National Minimum Wage and National Living Wage calculator to check the correct rates.

● If you find errors, don’t just correct the situation going forward, make sure to pay the workers in question any arrears. This will mitigate the risk of a worker complaining and HMRC subsequently investigating you. Use the National Minimum Wage and National Living Wage calculator to work out arrears.

● You must keep records proving that you are paying the minimum wage - most employers use their payroll records as proof. All records have to be kept for three years.

● For free, confidential and expert advice on all NMW/NLW issues call Acas (Advisory, Conciliation and Arbitration Service) on 0300 123 1100.