Legal Guides

We use plain and simple English to give you an overview of the most common areas of law.

Is your company compliant with the National Minimum Wages Regulations?

With the cost of living rising high, the next hot topic is bound to be the planned increase to the national minimum wage / national living wage rates.

From 1 April 2022, the National Living Wage (applicable to workers from the age of 23) will reach £9.50 per hour – an approximate 6.5% increase on the current level. The other rates (for younger workers and apprentices) will similarly rise between 4 and 11%.

We all need to get it right when it comes to paying the national minimum wage.

Why is it so important?

Of course, no employer wants to be underpaying its workers. For a start, the rate set is meant to reflect the minimum someone needs to earn be able to meet basic costs of living and as such there is no room for that amount to be further reduced by administrative errors.

It would also be detrimental to the reputation of the organisation to be found to be failing in its obligations in this regard. It is worth noting that the name and shame scheme has resumed and on its last round, HMRC named and shamed over 200 employers for falling short in their obligations in that regard. There are various serious legal repercussions if mistakes are made, from back pay, to fines and criminal liabilities. Not to mention the general hassle, administrative nightmare, and waste of management resources, of having to sort out the issue in the first place (who wants to be dealing with an HMRC audit on this?).

Finally, in an economic climate where recruiting and retaining good workers is so essential, disputes around pay are not the way to build and bolster engagement and productivity.

How to get it right

Securing timely expert advice to support you throughout your employee cycle is definitely a good way to start.

Below is some useful guidance to assist you when dealing with workers who are at, or close to, the national minimum wage rate.

Whilst the national minimum wage rate is an hourly figure, this is not to say that it must be paid for every hour worked. Checking compliance involves adding up the relevant pay received in that particular pay period (a week or a month usually) and dividing it by the number of hours worked during that same pay period and checking whether that average figure meets the required level.

To get it right we therefore need to consider: the pay period, the pay received, and the hours worked, and how to assess those individual elements accurately in line with the legislation.

Here are some common mistakes to avoid.

Paying in equal instalments without the correct paperwork in place

Many employers give their staff an hourly rate of pay and a standard hourly contract. Others decide to pay the workers in 12 equal instalments across the year, rather than based on hours worked that given month.

From a financial management point of view, this may seem sensible for both the individual and the organisation. It is in fact a dangerous practice to adopt without the correct paperwork in place.

Unless the contract is clearly a salaried contract or annualised hours contract, HMRC will expect the workers to be paid for the hours they have actually worked that month, and to split the bill over the course of the year could easily lead to an underpayment on some “heavier” months.

If you are considering, or if you are already paying your staff in instalments; check the contracts to make sure that you have a salaried or annualised hours contract in place that meets the requirements set down by HMRC.

Failing to cover work related expenses

Another common pitfall refers to expenses. Work related expenses will normally be deducted from the pay before checking compliance with national minimum wage. Do take into account expenses that your workers are required to incur as part of carrying out their roles, such as having business insurance on their private vehicle (if driven for work purposes), mileage costs, uniforms (which can include a rather specific dress code), tools or equipment required, evening meals etc.

If your workers are on the national minimum wage already, those expenses need to be fully reimbursed in the month or week (depending on pay frequency) which they were incurred, or the next month/week at the latest.

Inappropriate deductions from wages

When someone is earning the national minimum wage, unexpected deductions can quickly lead them to financial difficulties, hence the extra protection for such workers.

Employers should not deduct from workers’ wages for goods or services that they, as a business, provide. For example, a nursery should not deduct from the employee’s wages for their childcare bill. Or a construction business for tools purchased for private use.

Instead, the worker should be paying the business separately in those instances. Whilst the result may seem the same, the second scenario does give employees financial independence and the ability to choose, if necessary, between paying their electricity bill or defaulting on childcare payments, even though the latter is with their own employer.

Overtime and time off in lieu

Occasionally employees may need to work additional hours, in line with the terms of their contract of employment. Some employers then give time off in lieu rather than additional pay –

inadequately managed this can also lead to difficulties. Time off in lieu should be given (and taken) during the same pay period it has been accrued in, or the next at the latest.

Take it within the next 6 months” type policy should never be deployed.

Timing is essential

An employee’s birthday can mean that they are moving up into the next national minimum wage band or that they can no longer be paid the basic apprentice rate. Indeed, an apprentice may have completed their training and needs to be moved to the standard age-related rate (be similarly mindful of not putting an apprentice on a “trial” period that would involve them being paid the apprentice rate but not actually undertaking any training yet).

In line with the topic of this article, there are yearly increases to the standard rates to contend with.

This does not mean you are required to split the week or month and apportion the rates on that basis. The applicable rate is the one that applies at the start of the relevant pay period. You can therefore end the pay period with the applicable rate you started, but then be sure to increase the pay for the next pay period.

National minimum wage can be a really tricky area of law. It is not just about paying the right amount but also having the right structures, policies, procedures and the paper trail in place to meet those requirements. In doubt employers need to seek expert advice on the matter. Much stress and expense can be spared by taking the time to get it right.

Author: Isabelle Shankar, HR Consultant at EML

DISCLAIMER: DISCLAIMER: This article should not be regarded as constituting legal advice in relation to particular circumstances. This article is merely a general comment on the relevant topic. If specific advice is required in connection with any of the matters covered in this article, please speak to  EML directly.

Published on 31st March 2022
(Last updated 31st March 2022)

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