Paying the National Minimum Wage

The National Minimum Wage (NMW) and National Living Wage (NLW) continue to cause problems for employers, with HM Revenue & Customs taking a sometimes zealous approach to its enforcement.

The rules are not straightforward in some instances and employers have been caught out for not paying their workers at least the minimum wage for their age.

The National Minimum Wage hourly rates since April 2021 are:

• £8.91 - Age 23 or over (National Living Wage)
• £8.36 - Age 21 to 22
• £6.56 - Age 18 to 20
• £4.62 - Age under 18
• £4.30 - Apprentice

New rates from April 2022 are likely to be announced in the Budget on 27 October 2021.

Employers need to understand some of the complexities of the NMW in order to avoid being named and shamed by HMRC, and should therefore have robust procedures in place to minimise the risk of a HMRC enquiry.

Those recently named and shamed include John Lewis plc, Martin McColl Retail Limited, One Stop Stores Limited, and Welcome Break Holdings Limited.

The policy of naming and shaming has been heavily criticised in the past for naming employers who fell foul of technical interpretations of the legislation and employee benefits rules.

Complexities

There can be complex issues with the NMW and getting it wrong does not bring much sympathy from HMRC, even where the rules are difficult to understand. 

Examples of areas where problems can arise include:

• Travel time to and from different places of work, and time spent waiting to start or end work. An employer was penalised for not paying staff for the time they spent queuing to clock off after a shift.
• Pay reference periods for salaried hours work where the employer must ensure that the rules are met for every separate pay reference period.
• Compensating workers for deductions from pay where they are required to purchase uniforms.
• Salary sacrifice arrangements which result in deductions from pay.
• Availability for work during sleep-in shifts for care workers.

Further issues arose during the pandemic with regards to the interaction of the NMW and the furlough scheme, as touched on in a report by the Low Pay Commission.

Excuses for not paying the National Minimum Wage

HMRC publishes annually a round up of the more inventive and erroneous excuses by employers for not paying the NMW:

1. “She does not deserve the National Minimum Wage because she only makes the teas and sweeps the floors.”
2. “The employee was not a good worker, so I did not think they deserved to be paid the National Minimum Wage.”
3. “My accountant and I speak a different language – he does not understand me, and that is why he does not pay my workers the correct wages.”
4. “My employee is still learning so they are not entitled to the National Minimum Wage.”
5. “It is part of UK culture not to pay young workers for the first three months as they have to prove their ‘worth’ first.”
6. “The National Minimum Wage does not apply to my business.”
7. “I have got an agreement with my workers that I will not pay them the National Minimum Wage; they understand, and they even signed a contract to this effect.”
8. “I thought it was okay to pay young workers below the National Minimum Wage as they are not British and therefore do not have the right to be paid it.”
9. “My workers like to think of themselves as being self-employed and the National Minimum Wage does not apply to people who work for themselves.”
10. “My workers are often just on standby when there are no customers in the shop; I only pay them for when they are actually serving someone.”

Whilst HMRC is happy to publicise the more outrageous excuses, it doesn't address the genuine reasons employers may have for misunderstanding the legislation.

Difference in rates

The National Living Wage is different to the UK Living Wage and the London Living Wage calculated by the Living Wage Foundation.

Differences include that: the UK Living Wage and the London Living Wage are voluntary pay benchmarks that employers can sign up to if they wish, not legally binding requirements;

• the hourly rate of the UK Living Wage and London Living Wage is based on an attempt to measure need, whereas the National Living Wage is based on a target relationship between its level and average pay;
• the UK Living Wage and London Living Wage apply to workers aged 18 and over, the National Living Wage to workers aged 23 and over.
• The LPC has no role in the UK Living Wage or the London Living Wage

Payroll information

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