The National Minimum Wage (NMW) must be paid to all UK workers yet, whilst compliance may seem simple enough, many employers are still falling foul of their obligations.
HM Revenue & Customs (HMRC) are not soft when it comes to enforcement, and recently published the names of over 200 businesses – ranging from high street giants to sole traders – who are leaving workers out of pocket.
These employers are not only required to repay workers what they’re owed, but have also been issued fines totalling around £7m.
Clearly, not getting to grips with the rules can be damaging both financially, and to your reputation as an employer.
It’s important, therefore, that employers understand what their responsibilities are, how to be compliant, and how to avoid the pitfalls that come with paying the NMW.
What is the National Minimum Wage (NMW)?
The NMW is the minimum rate of pay, per hour, that a worker is entitled to, and is determined by the employee’s age and/or contract type.
Worth bearing in mind is that workers aged 23 and over are entitled to receive the National Living Wage (NLW).
The rates, effective 1 April 2023, are as follows:
|23+ (NLW)||21-22||18-20||Under 18||Apprentice*|
|From 1 April 2023 – 31 March 2024||£10.42||£10.18||£7.49||£5.28||£5.28|
* The Apprentice rate applies only if the individual is under 19 years of age, or over 19 but in the first year of their apprenticeship. Once the first year of their apprenticeship has been completed, they are entitled to receive the NMW for their age bracket.
Common mistakes to watch out for when paying the NMW
There are a number of common pitfalls that employers should be aware of, when it comes to paying the NMW, to avoid underpaying staff and so the consequences of non-compliance.
Here, we cover just five of the most frequently cited mistakes and how to ensure you’re getting NMW right.
- Failing to uplift rates
One of the most common oversights employers make is failing to increase rates, either as dictated by Government each year, or as their employees have birthdays – i.e., turning 18. National Minimum Wage rates typically change at the start of each new tax year, and so employers should ensure that they are prepared to accommodate any uplift ahead of 1 April 2023.
In addition, employers will need to keep up-to-date records pertaining to their workers, to ensure that wage rates are uplifted accordingly as they move into different age brackets – i.e., turning 18, 21 and 23 years of age.
- Incorrect application of apprentice wage rates
Incorrect application of apprentice wage rates, whether paying it erroneously, or for too long, is also not uncommon.
Before anything else, it’s important to identify whether your worker is an apprentice, or not. The apprentice National Minimum Wage rate must only be paid to those employed on a recognised apprenticeship scheme or engaged under a contract of apprenticeship.
However, if an apprentice is aged 19 or over, and has completed the first year of their apprenticeship, they are legally entitled to be paid at least the NLW or NMW for their age.
When you consider the difference between the rate of pay for an apprentice and a 23 year old apprentice in their second year, is in excess of £5, the underpayments resulting from any errors can be significant.
Keeping accurate records relating to any apprentices that you employ is key to ensuring NMW compliance.
- Deductions that reduce rates of pay
Another recurrent mistake that is worth watching out for is deductions that reduce a workers rate of pay below the minimum wage.
Deductions made from a workers pay for items connected with their job, such as uniform or tools, or indeed payments towards a salary-sacrifice scheme, should not take a worker below the NLW or NMW threshold for any given pay period. Employers should account for any deductions of this nature, before calculating worker’s pay.
It would be wise to seek professional advice if you are unsure about the impact of any schemes or deductions on wage rates.
- Misunderstanding ‘working time’
NMW underpayment can also occur where the employer does not fully understand their obligation to pay for ‘additional time worked’ or time spent travelling, for example.
This is particularly pertinent where the employer operates a clocking in/out system. Time spent working must be accurately recorded to ensure that workers are being paid correctly.
- Incorrectly including ‘other’ payments that do not count towards NMW
NMW cannot be subsidised with ‘other’ payments that do not count towards the hourly rate of pay, such as tips, payment for overtime or reimbursement of expenses. These elements of pay should be received in addition to the NMW.
How can GH Payscheme help?
By outsourcing your payroll function to GH Payscheme, keeping abreast of legislative changes, misinterpretation of the rules, and processing errors need not be concerns. We can relieve you of your payroll headaches, and ensure that you are getting payroll right, every time.