Running Your Business
Beware breaching minimum wage legislation
In Running Your Business
Bookmark
Record learning outcomes
As the government announces a new living wage hike, Adam Bernstein spells out the dangers when business owners fail to comply
The National Minimum Wage (NMW) may be 25 years old, but employers are still being caught out for not paying staff correctly.
In mid-February, the previous government published the latest list of employers who had been caught not correctly paying staff and breaching National Minimum Wage legislation.
The list is long, with more than 500 employers named. While some of the underpayments were very small, 20 involved six figure sums, 98 involved five figure amounts, and one employer was found underpaying staff to the tune of £5.1m.
Notably, there were two pharmacies on the list – Oakfield Pharma Limited of St Helens which failed to pay £4,152.77 to one worker and Clear Pharmacy in Belfast that failed to pay £12,188.34 to 108 workers.
Mark Stevens, a legal director at law firm VWV, details that the NMW sets the amount of pay due to most workers from school leaver age up to the age of 25, with the National Living Wage (NLW) applying to those aged 25 or over. “All workers, except those who are genuinely self-employed, are entitled to receive the NMW or NLW,” he points out.
The NMW/NLW is calculated by including most financial awards or payments but excluding allowances such as regional or on-call allowances, unsocial hours payments, tips and gratuities, or any benefits in kind, with the exception of accommodation up to a specified amount.
Prior to April 2024, the NLW applied to those aged 23 and above. However, from April it expanded to include 21- and 22-year-olds. He continues: “The NLW increased by 9.8 per cent from £10.42 per hour to £11.44 per hour. For a full-time employee working 37.5 hours per week, this equates to a minimum annual salary of £22,308.”
As for younger employees and apprentices, they too saw significant pay increases from April. As Stevens explains, an 18- to 20-year-olds’ hourly pay increased to a minimum of £8.10 per hour. Additionally, 16- to 17-year-olds and apprentices saw their pay increase to a minimum of £6.40 per hour which is a huge 21.2% increase, believes Stevens.
Enforcement
Under NMW legislation, employers have an ongoing obligation to keep certain records in relation to the hours worked by, and the payments made to, workers. On this Stevens explains that all the information about the pay received by a worker in a particular pay reference period must be contained in a single document. He says that records can be kept on paper or computer but since 1 April 2021 “must be kept for a minimum of six years from the end of the pay reference period following the period to which they relate”.
The ‘pay reference period’ is defined as the period of time that the pay covers. So, for example, if paid daily, the pay reference period is one day, if it’s weekly, the pay reference period is one week. It’s important to note that, as Stevens points out, the pay reference period cannot be longer than a month.
Like other forms of employment legislation, the NMW is incredibly complex which is why Stevens has seen “underpayments being the result of confusion rather than any deliberate failure by an employer to comply”.
Indeed, there are a number of common scenarios where he’s witnessed employers falling short with NMW. He recommends caution over five distinct problem areas.
Firstly, there’s employment status. Where this is misclassified or where a worker is ‘off-payroll’ employers can fail to pay the correct NMW. Then there are issues over salaried staff who are relatively lowly paid and regularly work long hours; employers fall short when taking into account the hours worked in relation to the rate of NMW.
Another area to keep tabs on is working hours. This may apply if a worker is required to arrive early or stay late for training, debriefing or staff meetings; these hours constitute ‘working time’ therefore they should be paid at NMW. Employers also need to be aware of staff uniforms as employers that require staff to pay for their own uniforms out of their salary can cause pay to fall below the NMW.
Lastly, employers sometimes slip up where they fail to increase a workers’ pay following a birthday which moves them into a new NMW bracket.
Getting NMW wrong
For any regime to work there has to be a potential stick and so employers found in breach of the legislation may face significant legal repercussions.
“It’s important to remember that underpaid workers can launch formal and/or legal action. Those who think that they have suffered an underpayment of NMW can raise a formal grievance to their employer, complain to HM Revenue and Customs or bring a number of claims against their employers,” Stevens says.
In particular he warns that they can bring a claim for unlawful deduction from wages under section 13 of the Employment Rights Act 1996; a breach of contract, either in the employment tribunal or the County Court; or a claim for unfair dismissal or detriment under the National Minimum Wage Act 1998.
And then there are the financial penalties that can be brought to bear; employers found to have not paid their workers the NMW can face substantial fines – currently up to a maximum of £20,000 per underpaid worker.
Last on Stevens’ list is the risk of adverse publicity. As he says: “The government’s ‘name and shame’ scheme can put a negative spotlight on employers found to be in breach of the NMW legal requirements. This could result in significant damage to the employer’s reputation.”