4 Jul 2023

Complying with the National Minimum Wage

More than 200 companies have been identified by the Department for Business and Trade for failing to pay the minimum wage to their lowest-paid workers in the Government’s latest naming and shaming.

Of those listed, 39% had deducted pay from workers’ wages, another 39% had failed to pay workers correctly for their working time, and 21% had paid the incorrect apprenticeship rate.

What can employers do to strengthen their NMW compliance practices?

1. Insufficient time records

While most employers pay the correct hourly rate, many are at risk of being challenged by HMRC because they cannot provide evidence of the actual hours worked for which workers should be paid. Within many sectors, rotas often record the number of shifts allocated but not the actual hours worked. In addition, unpaid breaks can lead to a challenge if they are not taken or recorded properly.

2. Unpaid hours worked

Workers can often be asked to carry out additional duties not strictly included within their day-to-day roles where NMW applies. Examples could include:

  • Arriving before the start of the shift to change into a uniform/protective clothing or start machinery/computers
  • Security checks
  • Cleaning/tidying up after a shift
  • Cashing up
  • Working additional hours for which time off in lieu is not included immediately provided
3. Deductions from pay

While statutory deductions and a small number of deductions for payments to third parties will not impact NMW, any amount taken from pay that is deemed to be for the employer’s ‘own use or benefit’ or ‘in connection with employment’ can reduce pay for NMW purposes. Examples can include deductions for uniforms, travel and tools/equipment, etc.

4. Workers' purchases or benefits

Care must be taken whenever workers can purchase a product or service or participate in a benefit scheme when it is deducted from pay (even when the employees enter the arrangement voluntarily), such as savings schemes, travel cards, car parking, meals, etc.

5. Deposits and other ‘first day’ deductions

Any compulsory deposit items such as uniform and locker keys can reduce pay for NMW purposes, as would any deductions or payments for equipment or training costs etc.

6. Living accommodation

The provision of living accommodation is the only benefit in kind that counts towards NMW, the value of which is capped per week (including all associated costs). Any deduction or payments above this capped level will reduce pay for NMW purposes.

7. Uniform/Dress code

Any requirement to purchase a particular type of clothing to meet an employer’s dress code policy will reduce pay for NMW purposes. This can apply both to new starters and existing workers who are obligated to renew clothing to continue to meet an employer’s dress code. Examples include a requirement to wear a specific style or colour of clothing/shoes. HMRC can challenge even when the worker is not required to purchase the items directly from the employer.

8. Salaried work

Specific rules apply to the calculation of pay for NMW purposes in respect of salaried workers. This is to ensure that all working hours are captured when pay levels are calculated. It is vital that employers track and monitor workers' hours on an annual basis to ensure NMW compliance.

9. Salary sacrifice arrangements

Many employers provide benefits such as car schemes, cycle-to-work arrangements, and pension contributions to be made via salary sacrifice. These arrangements are designed to benefit workers, and employers will naturally want to treat all their workers equally. However, any reduction in contractual pay will as a result of salary sacrifice decrease pay for NMW purposes. At no point should workers’ pay be brought below NMW due to salary sacrifice.

10. Apprenticeships

Apprentices who are on the apprentice rate of the National Minimum Wage can only be on this rate if they are over 19 for 1 year. Diarise when they will need to be paid the higher rate, so you don’t miss it.

How can The HR Branch help?

This list is not exhaustive but provides insight into the type of challenges typically raised by HMRC. What is clear is that selecting the correct hourly rate is only the first step in ensuring compliance with the NMW. Moreover, whilst the level of underpayments identified continues to rise year on year, HMRC is unlikely to reduce its focus on this key area of the government’s social and economic policy.

It is important that employers have processes in place to identify whether any arrangements bring workers below NMW rates and, if so, whether the deductions made or payments received reduce pay under NMW rules. Pay should also be monitored regularly to ensure there is no breach of NMW in the future.

Get in touch

If you have any concerns, need help getting processes in place, or would like to talk through any specific cases where you think employees' pay might have dropped below minimum wage, we can help.