March 13, 2019

National Minimum Wage: Are you Breaking the Rules?

The British Retail Consortium (the trade body for shops and online retailers) recently called on HMRC to halt National Minimum Wage enforcement claiming that the current system is no longer fit for purpose.

The current National Minimum Wage (NMW) provisions date from 1998 and have recently celebrated their 20th birthday. I’m sure some of you remember the days when NMW was £3.60! The problem is that current regulations still reflect the 1998 world of work and haven’t moved with the times.

Consequently it’s not unusual to see yet another company “named and shamed” because it has fallen foul of HMRC interpretation of the regulations. Supposed infringements have occurred across a number of sectors but retail, hospitality and hair and beauty seem to have suffered the consequences.

Many of you will have read about the HMRC accusing Iceland of a National Minimum Wage breach. Technically, they broke NMW rules because employees could choose to save in a “Christmas Club” direct from their wages. This salary sacrifice provision potentially infringed the rules because actual take-home pay dropped below NMW levels. Employees get it all back at Christmas but this is currently completely ignored!

Sir Malcolm Walker, Iceland’s founder and Chief Executive, recently said “These are ludicrous and time-wasting investigations into technical breaches of the minimum wage rules by companies that are actually trying to do the right thing and give a helping hand to their staff.”

But did you realise just how many other banana skins are out there to slip you up? Here are just a few you may not be aware of:

1. Meetings, training events and briefings count as working time

If you ask staff to attend a meeting, training event or briefing out of normal hours, this is all working time and would count towards the assessment of the National Minimum Wage. If you don’t pay employees, you could breach the regulations. You need to work out whether, by attending such events, their actual hourly rate would drop below NMW.

2. Travel on behalf of the business is classed as working time

The time taken to reach and return from client visits for mobile staff, such as carers and delivery drivers, is considered as working time. In addition, an apprentice travelling a long way to college could be caught up if they’re not paid.

3. Employees who are required to wear particular types or colours of clothing must be compensated

An example of this is a hairdressing salon saying employees must wear a white t-shirt and black jeans. If no clothing allowance is paid, HMRC may well make a “nominal” assessment and consider that amount to have been deducted from the employee’s pay. If it then drops them below NMW the hairdresser has technically infringed the regulations.

Deductions for tools or uniforms (even if the “uniform” is heavily discounted, high fashion apparel from a designer’s current collection) are potentially unlawful if they drop wages below the NMW level.

4. Overtime premium payments

Overtime premium payments potentially don’t assist either. If you paid someone £7 per hour but enhanced this to £10.50 when they work overtime, only the basic rate of £7 is assessed for NMW purposes.

Four categories you can consider as pay for National Minimum Wage purposes

In reality there are only four categories you can routinely consider as pay for NMW purposes. These are:

  • Basic salary or wages
  • Bonus, commission and performance based incentives
  • Piecework payments
  • The accommodation allowance (if residential accommodation is provided)

Hopefully, a recent review by the Department for Business, Energy and Industrial Strategy will come up with some positive adjustments. Admittedly this review, which closed on 1st March, was principally about the impact on salary sacrifice schemes.

In the meantime, watch out that money you deduct from employee’s pay doesn’t, inadvertently, drop them below the current level of the National Minimum Wage.

Have you considered outsourcing your payroll?

When it comes to payroll, the list of things to think about can seem endless and complex.

When your payroll system is running like a well-oiled machine, it goes unnoticed, but HMRC’s minimum wage enforcement exercise demonstrates that getting wages wrong can have frightening consequences.

If you are worried about any aspect of payroll it may be time to think about outsourcing.

We have produced a guide to outsourcing payroll that aims to give a fair and balanced overview of the key elements you need to consider. You can download the resource from the Resources section of our website.

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About the author

Mike Fitzsimmons

About the author

Mike Fitzsimmons

Mike is a Senior HR Consultant within the Moorepay Policy Team. He is responsible for the developing of employment documentation and is an Employment law advisor. With over 30 years of senior management and HR experience, Mike has managed teams of between 30 and 100 employees and is familiar with all the issues that employing people brings. He has also served as a non-executive director on the Boards of several social enterprises and undertook a five year tour of duty as Executive Chair of a £30+ million annual turnover Government agency.

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