On 5 August 2021, the Department for Business, Energy & Industrial Strategy (BEIS) named 191 employers, including some household names, who had failed to pay the National Minimum Wage (NMW). BEIS also published a summary of the main issues that caused those underpayments. Most NMW breaches are due to technicalities in the regulations or working practices that aren’t visible to payroll departments. This is in line with KPMG’s experience: but means employers who fully intend to pay NMW are still being caught out. Employers should ensure their systems and processes can identify potential ‘technical’ breaches of the NMW regulations, so these are avoided and can be corrected outside of an HMRC review. Errors identified during an HMRC review are
Why NMW reviews matter
All employers have an obligation to pay their employees at least the relevant NMW.
Any failures must be corrected based on current NMW rates, rather than those that applied when the underpayment arose. Penalties of up to 200 percent of the arrears, capped at £20,000 per affected employee, can be applied. In addition, employers who underpay employees by £500 or more will be named.
The potential financial and reputational impact of an HMRC enquiry may quickly generate interest from the Board and other stakeholders (e.g. during a transaction).
What employers get wrong
The recent BEIS report highlights two key areas that resulted in employees receiving less than their statutory minimum entitlement:
- Deductions or payments from wages that take pay below the relevant minimum rate; and
- Unpaid working time.
Some examples BEIS give of deductions that can lead to NMW breaches have a clear rationale such as fees for processing attachments of earnings, and deductions for uniforms or for working equipment.
However, some are less clear – particularly those where the employee obtains a personal benefit from the deduction.
Examples include deductions for parking permits, the cost of onsite meals, employer Christmas savings schemes and deductions for benefits provided through salary sacrifice arrangements.
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