National minimum wage is changing - watch out for the pitfalls

27 September 2016

Jackie Hall

National minimum wage (NMW) rates were increased on 1 October by between 3 and 4.7 per cent, and employers need to make sure the new rates are implemented for all hours worked from that date. Here’s a handy guide:

   Current rate   New rate from
 October 2016
 Increase 
 21 to 24 years olds   £6.70   £6.95  3.7%
 18 to 20 year olds  £5.30  £5.55  4.7%
 16 to 17 year olds   £3.87  £4.00  3.4%
 Apprentices   £3.30  £3.40  3%


But it isn’t just the headline rate that businesses need to be aware of, as in many cases other factors need to be considered, and it is generally these issues which cause employers to fall foul of the legislation.

For example, where an employer requires an employee to provide their own uniform or piece of equipment the cost should be taken into account when considering whether NMW has been paid. Similarly, as seen in many of the recent high profile cases, it’s important to understand what hours should actually be included as hours worked. It could also be a simple administrative error such as not spotting that an employee has reached a milestone age which takes them up into the next rate. HMRC has wide-ranging powers to conduct compliance checks and with the possibility of employees contacting HMRC through the Pay and Work Rights Helpline, it’s essential for employers to get it right.

Unfortunately even where the error is simply one of poor administration with no intent to short-change the employee, employers leave themselves open to substantial penalties and the likelihood of being named and shamed for failing to pay the NMW, with very few grounds for appeal, even where the total amount involved is very small - presenting a real reputational risk to any business.

Last month saw the largest list of employers 'named and shamed' for failing to pay their staff the NMW to date. And with a number of high-profile cases hitting the headlines in recent weeks, employers need to be more aware than ever of the pitfalls and problems surrounding this area of employment legislation. 

It’s probably worth adding that the NMW is not to be confused with the national living wage (NLW) which was introduced in April 2016 for employees aged 25 and over. However the same procedures and penalties do apply.

With so many pitfalls and such severe repercussions for getting it wrong employers should take extra care to review their systems carefully to ensure compliance.

If you would like to discuss any of the points raised, please contact Jackie Hall or your usual RSM contact.



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