This week our payroll team celebrated National Payroll Week and we thought it would be a perfect opportunity to clarify some of the specifics around the National Minimum Wage.
The National Minimum Wage was introduced by Tony Blair’s Labour Government in 1999 at a rate of £3.60 for workers aged 22 and over and £3.00 for workers aged 18 – 21.
Since then, many changes have been made to the structure of the National Minimum Wage (NMW) and multiple levels of rates now exist. For pay periods that began on or before 1 April 2022 the rates are now: aged 23 and over £9.50 (National Living Wage), aged 21 to 22 £9.18, aged 18 to 20 £6.83, under 18 £4.81, apprentice rate £4.81.
The Government announces the rates each year following recommendations from the Low Pay Commission and research with employers, businesses, employees and interested stakeholders. However, there are some common mistakes employers can make which can cause a failure to pay the National Minimum Wage and these include:
Not paying all working time – which includes travel time, training time, time where the employee is required to attend work e.g., opening up before business hours begin, concluding security checks at the end of each shift.
Making deductions that are deemed to be ‘for the employers’ benefit;’ a common error is the deduction of £1 where a pay attachment has been taken from an employee’s pay. This isn’t an unlawful deduction, however, whereby taking it the employee’s pay falls below the rate of NMW then the deduction can’t be taken.
Allowing an employee to enter a salary sacrifice scheme where the sacrifice would take their hourly rate of pay below the relevant NMW rate.
Paying the apprentice rate where an employee is not an apprentice or where they are aged 19 or over and have finished the first year of their apprenticeship.
Not making a timely change to the rate – either due to a Birthday that takes the employee into a new rate bracket or following the implementation of the new rates each year.
Failing to comply is a costly exercise for an employer, and in addition to making good any underpayments of NMW to both past and present workers, the employer may also suffer a penalty of up to 200% of the arrears owed to a maximum of £20,000 per worker. Employers also risk being publicly named and shamed where HMRC have issued a Notice of Underpayment.
A common misconception is that payroll systems will hold all necessary details needed to ensure compliance with NMW regulations, but this is not the case as there may be elements that fall outside of normal payroll processes that can impact accurate calculations.
It is also important to note that records to demonstrate that employers are paying the National Minimum Wage must be kept for a minimum of 6 years. This list is not exhaustive but robust record keeping will include:
Payroll records
Contracts of employment or Apprenticeship
Time sheets/clocking in records
Expenses claim forms
Job adverts
The potential list of records that could be stored is endless and will be unique to each employer, however, it needs to be sufficient to evidence the accurate payment of the Minimum Wage if penalties are to be avoided.
If you would like to learn more about outsourcing your payroll please get in touch.
