National Minimum Wage Common Errors

On the 28th of June 2023, the Department for Business and Trade (DBT), based on HMRC data, published a list of 202 companies that had failed to pay their employees the national minimum wage, as part of their ‘name & shame’ campaign. The list included several major companies, including Argos, Marks & Spencer and WH Smith, all of whom have now paid what they owe to employees as well as HMRC penalties.

These cases were unearthed 3 to 5 years ago, but as you can see, these name and shame lists can take some time to compile and finalise. At first glance, you would think that National Minimum Wage (NMW) compliance should be easy, pay at least the minimum wage and you’re fine. Well, yes in theory, but there are so many actual and potential interactions with the minimum wage, that payroll/HR systems often get seemingly innocuous processes wrong.

National Minimum Wage: It’s easy to make a mistake

Over 40% of employers on the list made deductions from wages that took the salaries paid below the NMW. The deductions include:

• Food / meals
• Parking permits and / or travel costs
• Cost of, or lost, work equipment and / or Personal Protective Equipment
• Stock or till shortages
• Training costs
• Mandatory Christmas savings schemes
• Uniform costs (cleaning, wear and tear etcetera)
• Childcare costs
• Salary sacrifice schemes eg cycle to work, pension and employer benefit schemes
• Worker purchase of clothes to meet company dress-code

The above list covers the bulk of common errors by the listed employers. The error can be as simple as a restaurant chain requiring the employee to supply their own black shirt and trousers/skirt, with the cost to the employee needing to be included into NMW calculations. In this example if the employee is being paid the NMW rate and company policy is that they must supply their own black clothing, this automatically makes it a breach of the NMW regulations.

Another 40% of employers on the list made errors on unpaid working time, with the most common areas to be mindful of being:

• Additional work before and after a worker’s shift
• Rounding clock-in time to the nearest hour
• Unpaid travel time
• Issues with final pay where employment has come to an end
• Pay is delayed / underpaid due to cashflow or ad hoc payments
• Paid for ‘regular’ hours or day rate, but a worker has worked for more time than this
• A salaried hours worker has worked in excess of basic hours
• Time for undertaking mandatory training
• Time worked during a sleep-in shift
• Overtime
• Trial shifts

It’s simple to say “just pay people for the hours that they work” but the real elephant in the room is whether all working time is being correctly recorded. For example, if an employer requires a security check or bag search after a shift, this must be counted as working time, which can add up to a lot of working time very quickly if a lot of staff finish at the same time and have to queue to be checked.

The final area of common errors, covering 20% of employers, was failing to pay the correct rates to apprentices. This could either be after they have competed their first year, the worker is incorrectly classified as an apprentice or has finished their apprenticeship and not had their rate changed.

NMW errors: What should be done?

Whilst the headlines focused on the big names on the list, such as WH Smith who had underpaid 17,607 workers over £1m in total, on average the amount of underpaid wages per employee was relatively modest, averaging less than £100.00 arrears of pay per year per employee.

Some companies on the list had even made voluntary disclosures, having spotted the errors and corrected them. But even if you spot something before HMRC do, you could still end up on the list, one more reason to get things right first. For this very reason, it might be a good idea to do a total review of your payroll processes and identify blind spots within your company, it could be well worth the time and effort.

You can see from the above lists that there are many ways the NMW rules can be broken, but primarily it happens because there’s been a breakdown in communications between those who make the payments and those who implement policy. Often specific aspects of a contract are not discussed as to their potential impacts and managers may have implemented a change that could have some very serious consequences, but the payroll department, who could have flagged this up, are often unaware of the changes.

Current National Minimum Wage rates

As of 1st April 2023, the minimum wage rates are:

23 and over    21 to 22           18 to 20           Under 18         Apprentice

£10.42             £10.18             £7.49               £5.28               £5.28

For more detailed information go to: https://www.gov.uk/national-minimum-wage-rates

Tax Accountant’s view

This biennial name & shame ritual not only serves as a timely reminder to employers to get their payroll ducks in a row, but also highlights the fact that too many employers do not value their employees enough to pay them more than the bare legal minimum. Employers in this category, only have to make the tiniest mistake to fall foul of the NMW regulations and if they do, I have absolutely no sympathy for them.