Every few months, the government names and shames the latest batch of employers who have underpaid the National Minimum Wage (NMW). In early July, 239 employers were named and a record 22,400 UK workers are to receive a total of £1.44m in backpay, with the employers being fined £1.97m in total.
Funding to enforce the NMW enforcement has more than doubled since 2015 and the government is set to spend a further £26.3m on enforcement during 2018/19.
Employers who fail to pay workers the National Living / Minimum Wage are required to pay wage arrears and also face financial penalties of up to 200% of the arrears.
What are the top mistakes and how can employers get it right?
- Making deductions from wages
Employers are permitted to make some deductions from wages – but the worker should still be receiving at least the NMW after the payments have been taken out.
These include expenses incurred by workers in connection with their employment such as the cost of work-related equipment and the purchase and/or cleaning of uniforms which is common in the retail, leisure and hospitality sectors.
The cost of such uniform can only be lawfully deducted from the worker’s pay (or paid by the worker directly to the employer or a third party) if, following the deduction or payment, the worker’s pay remains at or above the relevant NMW rate.
There are some deductions that do not reduce pay for NMW purposes. These include statutory deductions (for income tax and National Insurance), repayments of an agreed advance or loan, recovery of an overpayment of wages and contractual deductions or penalties.
- Underpaying apprentices
Workers are entitled to the NMW at the apprentice rate if they are:
(i) either in the first year of their apprentice or under 19; and
(ii) employed under a contract of apprenticeship or apprenticeship agreement, or engaged under certain government apprenticeship schemes.
For those over 19 or who have been working as an apprentice for more than 12 months, they are entitled to either the development rate or adult rate of NMW depending on their age
It is important that employers keep a record of all their apprentices and their dates of birth. This should be reviewed regularly to ensure they are being paid at the correct NMW rate.
Only genuine apprentices should be paid the apprentice rate. If they are apprentices in name only, then they should be paid at the appropriate age-related NMW rate like all other workers.
- Failing to pay travel time
Time spent travelling in connection with employment (including any travel between appointments) is treated as working time for NMW purposes. Travelling between home and work does not usually count.
Employer approved training during normal working hours is also treated as working time for NMW purposes, irrespective of where it takes place. Where the training is not at the workplace, time spent travelling between work and the training venue will count as working time.
- Misusing the accommodation offset
As a general rule, the value of most benefits in kind will not count towards the NMW. However, accommodation is an exception. An “accommodation allowance or off-set” (currently £7 a day, although this changes annually) may be taken into account:
Where accommodation is provided free of charge, a sum equal to the accommodation allowance can be added to the total pay when calculating pay for NMW purposes.
If a worker pays rent that is equal to or less than the accommodation allowance, this will not impact the NMW calculation.
However, where a worker pays rent that is greater than the accommodation allowance, the amount charged in excess of the allowance should be treated as a deduction that reduces pay for NMW purposes. In these circumstances, the rent may need to be reduced or the hourly rate increased, in order to ensure the worker is receiving less than the NMW.
From April 2018 the Government will increase the National Living Wage , which applies to workers aged 25 and over, by 4.4% from £7.50 to £7.83. The Commission has estimated that this will benefit over 2 million workers. At the same time, the National Minimum Wage rates will be increased as follows:
- From £7.05 to £7.38 for 21 to 24 year olds
- From £5.60 to £5.90 for 18 to 20 year olds
- From £4.05 to £4.20 for 16 and 17 year olds
- From £3.50 to £3.70 for apprentices
The National Living Wage is different to the Living Wage – a voluntary scheme whereby pay is calculated with reference to what employees and their families need to live on and is run by the Living Wage Foundation.