Carolyn Brown

Written by: Carolyn Brown and David Williams-Richardson

Carolyn Brown

Partner, Head of Client Legal Services

National Minimum Wage - Complex rules can lead to expensive errors

  • August 2017
  • 3 minutes

Over 230 employers have made the government’s latest list of organisations who have failed to pay the National Minimum Wage (NMW). In total, over £2 million is currently owed in back pay to over 13,000 workers from across the retail, hospitality, construction and social care sectors – areas proactively targeted by HMRC. The list highlights the continuing problem that some employers are experiencing in dealing with the complex and costly rules around NMW, but what are the most common mistakes? What are the penalties if you do make a mistake? And, how can employers avoid making these errors? 

What is the NMW naming scheme?

Since October 2013, the government has taken a much stronger stance on NMW compliance, with HMRC now employing a dedicated team of over 400 compliance officers. The purpose of the scheme is to ensure employers pay NMW or risk suffering brand or reputational damage, by naming any employer who fails to comply, whether knowingly or not. 

What are the most common mistakes?

1. Using tips to make up pay.
2. Not paying workers for travel between work appointments.
3. Not paying for time spent closing / opening premises and security checks.
4. Taking payments for uniforms.

What are the penalties and how to avoid them?

If HMRC starts an investigation and decides an employer is not paying its workers at least NMW, the employer will be forced to repay the underpayment to any worker and ex-worker going back up to 6 years, face a financial penalty of up to £20,000 per worker and be named and shamed. However, if an employer self-corrects any underpayment of NMW before HMRC start an investigation, they will avoid any penalties and being named. 

How to avoid mistakes

It is quite right that employers who intentionally exploit vulnerable workers by failing to pay NMW are punished. However, there is an argument that more support could be provided for those who want to comply. Whilst the government’s NMW guidance has been helpful, a dedicated hotline for employers to disclose suspected breaches of NMW to HMRC and seek guidance on self-correction without the risk of being punished would be a positive step towards improving NMW compliance. 

For the time being though the message is clear; fail to comply whether knowingly or not and you risk reputational damage. Employers should therefore implement processes and carry out regular payroll audits to ensure they pay all workers at least NMW. 

To learn more about whether your organisation is complying with the NMW or if you need support with this, please comment below or get in touch with Carolyn Brown or David Williams-Richardson.

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