The latest naming and shaming list (the Scheme), published by the Department for Business and Trade (DBT) on 20 February 2024, revealed that 524 businesses failed to pay their employees the National Minimum Wage (NMW).

The Scheme was introduced in 2011 to educate and encourage employers to be compliant. The threshold for naming those considered to have been non-compliant was increased from £100 to £500 or more, in total arrears, in December 2020. However, DBT can still use the lower threshold where there have been cases of previous non-compliance.

The amount underpaid in the latest round amounted to £16 million, with approximately 172,000 workers underpaid. Consequently, the employers faced having to pay the current NMW rate to cover the arrears of pay, as well as penalties up to 200% of the underpayment.

Although it should be noted that there were technical errors, there were number of well-known brands amongst the culprits, for whom reputational damage may outweigh any financial penalties.

As well as the Scheme list, the Government also published the NMW Educational Bulletin – providing further information and statistics on findings from the latest Scheme round.

Summary of the common errors identified

• It was revealed that 36% of the employers deducted pay from their workers’ wages, which had the effect of bringing their pay down below the NMW. Typical reductions/deductions or payments cited were:
  • Parking permits and/or travel costs
  • Cost of, or lost, work equipment and/or Personal Protective Equipment
  • Stock or till shortage
  • Training costs
  • Christmas savings schemes (when administered incorrectly)
  • Uniform costs
  • Childcare costs
  • Salary sacrifice schemes e.g., cycle to work, pension and employer benefit schemes
  • Worker purchase of clothes to meet dress code

There have been a couple of high-profile cases relating to the Christmas savings scheme and workers purchasing clothes to meet an employer’s dress code.

HMRC states in its NMW manual that:  ‘there is no concept of “illegal deductions”, “non-allowable deductions” or “illegal payments” in National Minimum Wage legislation. The arrangements of the parties might reduce the calculation of National Minimum Wage pay, but that does not make such arrangements “illegal” from a National Minimum Wage perspective. For National Minimum Wage purposes HM Revenue & Customs is only concerned with the effect of a payment or deduction on National Minimum Wage pay’.

• 31% of employers failed to pay working time. This was due to:
  • Additional work before and after a worker’s shift
  • Rounding clock-in time to the nearest hour, half hour or five minutes
  • Unpaid travel time
  • Issues with final pay where employment has come to an end
  • Pay is delayed/underpaid due to cashflow/cessation in trading/or ad hoc payments
  • Staff 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 160 basic hours.
  • Time taken for undertaking mandatory training
  • Time worked during a sleep-in shift
  • Trial shifts
  • Overtime

Additional work not counted before and after shift and salaried workers working excess unpaid hours are typical type of errors that we come across often.

• 16% of employers failed to pay the correct apprenticeship rate. Typical errors included cases, such as:
  • An apprentice, over 19 years of age, had completed the first year of their apprenticeship and was still paid the apprentice rate
  • An apprentice was incorrectly classified as an apprentice and paid the apprentice rate
  • An apprentice finished their apprenticeship but did not receive a pay increase to reflect the higher minimum wage rate, to which they were entitled

All these errors have been mentioned previously in HMRC’s Educational Bulletin which cover the various rounds of naming and shaming.

What can employers learn from this?

The NMW has been in place since 1 April 1999 and forms an important cornerstone of the Government’s strategy in the workplace. It aims to guarantee decent minimum standards of pay for workers and to promote fair competition between businesses. This means that it will always be well resourced, so we expect there to be HMRC increased compliance activity in this area.

NMW is a complex bit of legislation and even a well-resourced large company can fall foul of the legislation on a technicality. Employers should therefore ensure that they have robust processes, controls, and governance in place to defend any HMRC challenge.

Records should be sufficient to demonstrate to HMRC that an employer is paying each worker the required NMW rate. This means documenting all deductions from wages, in accordance with the NMW. Additionally, employers ensure that their system flags when workers’ age bands change, as well as updating the NMW rates each April. All records should be kept for six closed tax years.

How can we help you?

Our Employment Tax team is on hand to provide expert guidance to businesses, ensuring compliance, cost efficiency, and optimal employee compensation structures. We help navigate complex tax regulations, minimize risks, and enhance overall tax management. If you are unsure of any of the above, or become aware of any NMW potential breaches, please get in touch with Dinesh Pancholi, Employment Tax Senior Manager, or anyone else within our Employment Tax team.