National Minimum Wage Compliance Update

13 August 2021

    HMRC’s latest National Minimum Wage (NMW) ‘naming and shaming’ list was released earlier this month, revealing a total of 191 employers across the UK who have failed to pay staff the legal minimum in accordance with NMW Regulations. Of these 191 businesses, 22 were North of the Border which is proportionally higher than other parts of the UK.

    These lists are not new, albeit they were paused for a period while the Government took stock of its approach amid heavy criticism that the lists did not differentiate between deliberate defaulters and the majority of employers listed who had made genuine mistakes. The Naming Scheme is back with a vengeance though, but what is interesting this time is that HMRC has issued an ‘Educational Bulletin’ to provide some insight and stats behind the NMW breaches that have occurred across these 191 businesses.

    The headlines in the press coverage are the combined underpayments of pay of £2.1 million covering the employers on the list, and the additional penalties of £3.2 million imposed by HMRC. These figures are another reminder of the punitive costs of making mistakes on NMW aside from the reputational damage suffered by being on the Naming list in the first place. But what does the ‘Educational Bulletin’ tell us behind the headline numbers?

    First, it is no surprise that the three most common breaches identified in this Naming round were:

    • deductions from pay that reduced pay below NMW (47% of the 191 employers);
    • failure to pay workers for all working time (30% of the 191 employers); and
    • failure to pay the correct apprenticeship rate (19% of the 191 employers).

    These are the areas that we see causing problems in practice, either identified as part of an internal review or by HMRC during a formal NMW audit. In fairness, we suspect that the high percentage for deductions from pay is largely due to HMRC’s current interpretation of the Regulations in relation to deductions for the ‘employer’s benefit’ which many believe is incorrect and wrongly causing employers to fall foul of the law.

    Employees being paid the minimum rate for all time worked is at the heart of the NMW Regulations and we would always expect to see a relatively high number of working time breaches in any list published by the Government, usually caused by a lack of robust records or time keeping processes and an awareness of what constitutes working time.

    Apprentice pay has recently been the subject of an HMRC awareness campaign, and quite rightly, as the rules on apprentices and what rate of pay they qualify for is not as straight forward as it should be. The statistics listed in the Bulletin on this are not a surprise.

    Finally, a further statistic to highlight which has particular relevance to many Scottish employers particularly in the hospitality, farming and landed estates sectors, is that 6% of the employers in the current Naming list breached NMW because of a failure to apply the accommodation offset correctly. Whilst this offset rule is widely known, the application of the offset can be less than straight forward in practice when employees are charged for employer provided accommodation.

    This latest Naming round is a timely reminder (as if we needed it) that most NMW breaches are not deliberate and most occur either through a genuine admin error or a misunderstanding of the rules which can be complex. Unfortunately, HMRC continues to give little leeway even for these inadvertent technical breaches and their NMW investigation unit is back up to full speed undertaking NMW audits across the country again following a hiatus caused by Covid which we think will lead to bigger lists and bigger penalty charges than ever before.

    It is as important as ever for employers to give their NMW compliance due attention to ensure they do not place themselves at risk of breaches or being included on a future Government Naming list in the press. Critical to this is being fully informed of the specific rules around the main sticking points highlighted here and in the Government’s Bulletin.

    Our Employer Services team has extensive experience in supporting employers on NMW, whether this is helping them to proactively manage their NMW compliance responsibilities or dealing with HMRC when things go wrong. Please contact Brian Rudkin if you would like to discuss this further with our team.

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