Employers should be aware of the pitfalls of NLW and NMW

14 March 2017

Carolyn Brown and Graham Farquhar 

The increase in the National Living Wage (NLW) for those aged 25 and over on 6 April 2017 from £7.20 per hour to £7.50 per hour announced in the Budget speech followed the BEIS publication last month of the latest list of employers named and shamed for failing to pay their staff the national minimum wage (NMW).

The interaction of both NLW and NMW can be confusing for employers as the increases in the NLW rates are in April whilst those for NMW are in October resulting in employers having to address these increases on a six monthly basis. If an employee is coming up to age 25 it is possible that they may have 4 pay increases in the space of few months because of the move from NMW to NLW. 

Officers from HMRC can carry out NMW inspections at any time, without giving a reason. Where HMRC finds a breach, a notice of underpayment will be issued where arrears of NMW existed at the start of that investigation.

So, once an HMRC NMW investigation has started, it is too late to put one’s house in order either to avoid penalties or escape the risk of public naming. Once HMRC has issued a notice of underpayment, the employer has an uphill task avoiding automatic naming in a BEIS press notice under the scheme.

The latest BEIS list was headed by Debenhams Retail plc who is said in the list to have underpaid around 12,000 staff a combined amount of just under £135,000.

Headlines were also made earlier this month by Argos being reported to have underpaid £2.4m in wages to more than 37,000 staff as well as being fined a sum of over £1m which could reduce through early payment.

It is not only the big retailers who are named. The BEIS list contains many smaller businesses which have underpaid amounts as low as a few hundred pounds but where the local impact on trade through public naming may be more marked.

The complexity of the rules along with need for very accurate record keeping often account for what may initially appear to be a relatively small mistake. For example if an employer requires an employee to wear a particular dress code and the cost is borne by the employee, then this is viewed by HMRC as the employer not paying either NMW and NLW.

It is also important to remember that the NMW and NLW apply not just to employees but to the workers in a business as well.

For more information please get in touch with Carolyn Brown, Graham Farquhar, or your usual RSM contact.