Original content from BDO United Kingdom
Managing your responsibilities under the National Minimum Wage (“NMW”) legislation is so much more complex than paying a worker the correct rate per hour - there are number of areas employers need to consider to protect their compliance record and avoid embarrassing and damaging publicity.
HMRC’s latest campaigns
HMRC now has an enforcement budget for NMW of over £27m and uses approximately 450 inspectors spread across 30 locations. In a recent Government press release there is an alarming, but not a surprising statistic “since 2015, the budget for minimum wage enforcement has doubled with the government having ordered employers to repay over £100 million to 1 million workers.
HMRC letters to employees
You may be aware of HMRC issuing letters to employers in respect of apprentices, changes in NMW rates and reminders of the common issues/areas employers get wrong in respect of NMW. However,
you might not be aware that HMRC are also issuing letters to workers on NMW and encouraging them to contact HMRC or ACAS if they believe they have been underpaid.
The latest worker letter we have seen outlines a list of current NMW rates and encourages workers to review an enclosed checklist on the following areas:
- Unpaid time before or after shift: For example, do they get paid for attending handover meetings, security checks, clean duties, changing into clothing to work, starting up computers, setup till etc.
- Unpaid travel time: Do they have to travel for their job but are not paid for this time, for example, travelling between assignments.
- Unpaid training time: The letter explains that the location where the training takes place does not matter for NMW purposes.
- Having to pay for items connected with your job: For example, do they have to pay for tools, equipment, uniform/items of clothing to meet a dress code (such as plain black t-shirt and black trousers)
Clearly, all these areas could lead to a potential underpayment of NMW if appropriate controls and monitoring are not in place. However, because the guidance has been simplified to aid user understanding, it has lost important detail compared to the legislative wording and supplementary guidance.
For example, when assessing whether travel time is working time for NMW purposes it is key to understand; which of the 4 ‘worker types’ an individual worker is, where they usually work, and the purpose of travel. Practically, whilst travel time between an individual’s home and their normal place of work is in many senses ‘travel for their job’, it is not working time for the purposes of NMW.
HMRC must investigate every complaint made directly by a worker or referred to them by ACAS, so this could lead to a costly and time-consuming investigation being undertaken even when the complainant is wrong. Furthermore, during the COVID pandemic, many employees reported their employers for furlough irregularities, and this could lead to another potential area of focus by HMRC compliance officers during 2022, i.e. if a worker attended training whilst on furlough, or was placed on flexible furlough, were they paid at least NMW for this working time?
Recent changes in NMW legislation
- From 1 April 2022, NMW rates will increase (between 4.1% and 11.9% depending on age/category) at the same time that the increase in employers’ and employees’ National Insurance Contribution rates increase. See latest rates.
- The government plans to introduce legislation to ensure that all tips are passed to workers, but employers should remember that any tips or gratuities a worker receives are ignored for NMW purposes. As this was announced in September 2021 it is possible this will be implemented during 2022.
- Since 1 April 2021 employers have been required to keep records to demonstrate they have paid all workers NMW for a period of six years (previously three years).
- From 1 April 2021 the National Living Wage rate was extended to cover all individuals aged 23 or older. This previously applied to workers aged 25 or over.
- The definition of a salaried worker changed from 6 April 2020. HMRC are of the opinion that workers previously categorised as ‘unmeasured’ (this could include fortnightly or 4 weekly paid workers, or those receiving premium pay rates) will meet the new salaried worker criteria. Employers have until April 2022 to implement changes to comply with this change and may need to give workers notice of alterations.
Check your compliance against HMRC’s top target list
In our experience of HMRC’s NMW enforcement activity, officers commonly scrutinise and challenge employers in the following areas:
- Any deductions or payments taken from a worker (which are not passed onto a third party) e.g. security deposits, tool bonds, canteen deductions, purchase of products/services including clothing and uniform.
- Forcing workers to wear certain clothing to carry out employment duties, such as black trousers, white shirt, black shoes etc. without providing it or not reimbursing the worker for any costs they have incurred purchasing this clothing. Note, it does not matter if this is via a formal policy or locally enforced by managers on site.
- Operation of salary sacrifice arrangements, e.g. pensions, childcare vouchers, cycle to work and holiday purchase.
- Deductions or payments taken from a worker when they leave employment, e.g. reimbursement of training costs, car hire costs or cycle to work hire costs.
- Payments to volunteers/interns.
- Failure to pay apprentices for all time worked, including study time.
- Operation of TOIL/additional leave policies.
- Administrative/handling/transactions costs taken from a worker e.g. attachment of earnings
- Rounding in payroll systems e.g., to nearest X minute, rounding for early starters/early finish, rounding for late starters etc
- Deduction or payment taken from a worker in respect of living accommodation costs
It is worth noting, even if you have already been subject to a HMRC NMW review, you still need to continually assess your control processes to ensure compliance with NMW legislation. HMRC are re-visiting employers who have been subject to a NMW enquiry and there have been examples of employers being named and shamed for a second time.
If you have any questions regarding your NMW position and require assistance, please do not hesitate to get in touch with Geraldine Browne.