Ensuring Minimum Wage compliance

UK law gives rights to employees and ‘workers’, a minimum wage among them. Employers are obliged to pay minimum rates – there are no exceptions for smaller employers. For those aged 25 or over, this is called National Living Wage (NLW). For those below this age, it is National Minimum Wage (NMW). For convenience, we use ‘minimum wage’ as a generic term.

Rates vary according to age and depending on whether someone is an apprentice. They are set by the Department for Business, Energy and Industrial Strategy, but policed by HMRC. HMRC’s enforcement has come in for increasing criticism, especially where employers are penalised for what are technically breaches of the rules made to benefit employees. HMRC can take a very legalistic view, so that even optional remuneration arrangements (OpRAs) clearly benefiting lower paid employees may be challenged. The Government’s Good Work Plan promises a new enforcement agency, which will certainly mean change – though in which direction remains to be seen.
Rates are reviewed each year by the Low Pay Commission, with increases coming into effect each April. To add to the complexity, NMW/NLW rates differ from the voluntary ‘Living Wage’ promoted by the Living Wage Foundation.

Year Age 25 and over Age 21 to 24 Age 18 to 20 Under 18 Apprentice
From 1/4/2019 £8.21 £7.70 £6.15 £4.35 £3.90
1/4/2018 to 31/3/2019 £7.83 £7.38 £5.90 £4.20 £3.70

Entitlement to minimum wage

Minimum wage entitlement is given to:
• full-time and part-time workers;
• agency workers;
• casual workers;
• zero hours workers;
• apprentices;
• workers paid by commission or piece work;
• home workers;
• casual labourers – say those hired for one day;
• trainees or those on probation;
• disabled workers;
• agricultural workers;
• foreign workers;
• seafarers; and
• offshore workers.

Enforcement and risk

Employers discovering that a worker has been paid below minimum wage should immediately make payment of arrears. If HMRC bring the underpayment to light, not only must arrears be paid immediately, there is a fine and the possibility of ‘naming and shaming’.
The maximum penalty for arrears is £20,000 per worker, and arrears can be sought for six years. The penalty will be reduced by 50% where an employer complies within 14 days of being served with a notice of underpayment. Note that arrears are paid at current rates – not the rates in force when the arrears arose.
We have outlined only some of the pitfalls here. The final warning comes from HMRC’s statement in the Middlesbrough Football Club case. Whilst Middlesbrough won – despite deducting the cost of season tickets from wages – it underlines the need for vigilance:
‘The legislation does not draw a distinction between breaches arising from uncertainty or mistake or deliberate underpayment which means HMRC has no discretion to make these distinctions either. Employers are either compliant and pay their workers correctly, or they do not.’

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More HMRC info here