All employers are under an obligation to ensure that their workers are paid at least the National Minimum Wage or National Living Wage. The latest HMRC Bulletin highlights the most common mistakes that are found to be behind underpayments.
What are the consequences of failing to pay minimum wage?
Failing to do so may lead to Employment Tribunal claims from employees or enforcement action being taken by HMRC. That may start where employees or third parties have reported the underpayment or it has come to light following an inspection of the employer’s accounts. Once HMRC decides to take action its powers of enforcement are substantial as it can serve notices of underpayment, impose civil penalties, publically "name and shame" the employer, take action to recover the underpayments through the tribunals or civil courts, and even pursue a criminal prosecution against the employer.
Aside from the potentially damaging publicity, it can be very costly as a penalty of 200% of the underpayment may be imposed up to a maximum of £20,000 per underpaid worker.
Failing to pay the minimum wage may not be deliberate. In many cases, the employer will have simply made a mistake. However, that is no excuse. Even an innocent error may lead to enforcement action.
The top 10 most common mistakes when paying the National Minimum Wage
- Failing to pay the minimum wage following the annual increase: The new rates that take effect from next April have already been confirmed. The rate for 16-17 year olds goes up to £4.35 an hour; 18-20 year olds will rise to £6.15 an hour and for 21-24 year olds it will rise to £7.70 an hour. The National Living Wage - for workers aged 25 and over – will be £8.21 an hour. Employers need to ensure that their payroll is prepared for the increases.
- Missed birthdays. As employees turn 18, 21 or 25 years old and move from one rate to another. Arrangements need to be put in place to ensure that the payroll information is updated sufficiently in advance of the employee’s birthday.
- Paying the apprentice rate to somebody who isn’t actually an apprentice: The apprentice rate is currently £3.70 and whilst it will increase to £3.90 next April it is still lower than any other rate. However, there is still much confusion regarding apprenticeships. Not every new employee or trainee may be given the title of ‘apprentice’. Recognised apprentices must have an apprenticeship contract that identifies itself as a qualifying apprenticeship and undergoes an element of structured training.
- Continuing to pay the apprentice rate for too long: The apprentice rate only applies to apprentices who are under the age of 19, or if aged 19 or over within the first year of their apprenticeship.
- Making wage deductions for items or expenses that are connected with the job: This could include, for example, safety clothing, uniforms, tools etc. These would be essential items for the work and payments for these could mean that the rate of pay is less than the minimum. This has caused confusion, particularly where the employer does not have a uniform as such but has a dress code which requires that employees wear specific types of clothing. The costs of purchasing those clothes may mean that the level of pay falls below the minimum.
- Making wage deductions that are deemed to be for the employer’s “own use or benefit”: For example a Christmas club saving scheme. It doesn’t matter that the worker can choose to buy into the scheme and the employer doesn’t have to make a profit from it.
- Charging a worker more than the stated offset rate for living accommodation: Currently, the maximum offset is £49 a week even where the rental value of the accommodation may be worth much more on the open market.
- Not paying for all the time worked: Generally, all the time when the employee is at the disposal of the employer or carrying out any type of work should be counted. This includes the time spent travelling, training or downtime at the employer’s disposal.
- Not paying for additional time worked: This includes time spent clearing security checks once a worker’s shift has finished or needing to arrive earlier than their start time. For example where the employee needs to get changed into a uniform first.
- Including elements of pay that don’t count towards minimum wage: This includes tips and the premium element of pay associated with shift premium. The additional elements of pay will not count towards minimum wage.