National Minimum Wage – don’t be caught out!

Last month, more than 200 employers found themselves on a published list of those who had failed to pay their employees either the national minimum wage (NMW) or the national living wage (NLW).

However some of those employers felt aggrieved because the failure to pay was not deliberate, but because they said they had been caught out by some of the more complex HMRC rules relating to failing to account for overtime, not paying apprentices correctly and making deductions for uniform costs from pay.

It is vital for companies to maintain accurate records and understand what amounts to working time for NMW purposes. For example, when employers ask workers to attend additional training throughout the employment, this time is classed as working time for which they should be paid at least the NMW. The impact of this decision could be costly. Unpaid monthly training may soon add up to a significant underpayment of the NMW.

Many employers have also been caught out for making deductions for uniform costs. Under NMW rules, requiring employees to follow a dress code without any additional pay to cover the cost of the dress code is considered a deduction from NMW. The NMW guidance gives the example of a hairdressing salon requiring its employees to wear white t-shirts and black jeans. If the salon does not pay the employee a clothing allowance and is paying the NMW, then HMRC will consider that the employer has failed to pay the employee the appropriate wage.

It is also important for employers to keep track of birthdays, especially if salary levels are set in accordance with, or near to, the NMW or NLW. The NMW increases when individuals reach 18, 21 and 25 years old. Recognising annual rate changes effective from 1 April each year should also be part of an employer’s salary planning.