What is the National Minimum Wage?
The National Minimum Wage (NMW), which includes the National Living Wage rates, is the minimum pay per hour workers are entitled to by law. The rate will depend on a worker's age and whether they are an apprentice, and they change in April every year.
|Year||25 and over||21 to 24||18 to 20||Under 18||Apprentice|
Where companies are found to be in breach of paying the NMW, there are considerable financial liabilities and serious reputational damage through the government policy of public ‘naming and shaming’. The financial penalties can be up to 200 per cent of any arrears, or a maximum of £20,000 per employee.
HMRC announced in February 2020 that they recovered £24.4m for approx 220,000 workers not paid NMW in the previous year, up from £15.6m for 200,000 workers in the previous year.
How to identify a NMW underpayment
As a rule of thumb, companies who pay their staff a base rate of on or near NMW should check their staff pay and benefits / working hours very carefully.
There are several ways in which employers can inadvertently reduce workers’ pay below NMW levels. Investigations undertaken by HMRC have revealed a number of reasons cited by employers, and these include, amongst others:
- salary sacrifice schemes;
- reducing workers’ wages to pay for their Christmas party;
- being on call over night;
- requiring workers to pay for their own work uniforms out of their salary; and
- not paying for time spent on training courses.
You can download our guide to NMW compliance here, which outlines common errors when calculating NMW and what you can do to ensure you remain compliant.
What do to if you identify an underpayment or are contacted by HMRC?
When an underpayment of NMW is identified and the employer self-corrects before HMRC start an investigation, the company will avoid financial penalties and being named and shamed in the press. It’s definitely in a company’s interest to be proactive in managing this risk.
If you have been contacted about an investigation by HMRC our team can help to guide you through the process to achieve the best outcome for your company. You can find more detail on RSM’s NMW advisory services here.
What sectors are particularly at risk?
The following are all industry sectors which the government are proactively targeting for breaches of the regulation:
- the care sector, with over-night shift patterns;
- the consumer sector, including retail, hospitality and beauty services, where staff are often asked to pay for their own uniforms or remain on site for security briefings outside their agreed shift hours; and
- the construction sector where workers are asked to provide their own tools and safety equipment.
What to do next
If HMRC have been in touch or you are concerned that you might be breaching the NMW regulations, you can download our guide to NMW compliance or get in touch with one of our specialist advisers.