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National Minimum Wage

HMRC continues to focus on the national minimum wage (NMW), identifying more errors which has led to an increase in penalties.

We continue to see employers mentioned in the press where they fail to comply with the legislation. Recently, over 23% of businesses who were named for not complying with NMW legislation were in the hospitality sector.

This may come as no surprise given that there can be additional complexity for hospitality payrolls. Staff can be a mixture of part-time and full-time workers and paid on an hourly, weekly or monthly basis. There are also tips, service charges and shift swapping to contend with.

It’s important that your hospitality payroll systems and processes are robust and will stand up to an HMRC NMW compliance review. You need to be able to demonstrate that you are paying your staff accurately, on-time and that you have consistency in the process.

Within the sector there are areas where genuine misunderstandings or failure to understand the legislation can lead to mistakes. These include the following:

Staff uniforms

Much of the hospitality sector has staff uniforms. Often as a dress code and sometimes the employee may have to pay for this either directly or as a deduction from their wages.

Where an employee is required to wear, for example, black trousers or skirt and a white shirt the cost incurred is treated as a deduction for the purposes of calculating the hourly rate of pay. This means an employee can easily fall below the minimum wage threshold.

Working time

Working time includes any time spent at the start and end of the day or where the employee is required to arrive early or remain at work, for example, for a team meeting or to change into work clothing. Employers can overlook this time when calculating employees’ pay.

In addition, where employees are sent to work at a temporary place of work, the travel time also needs to be factored into the minimum wage calculation.

Tip payments

If tips and gratuities are paid at work they cannot count towards the NMW and should be paid in addition.

The use of a tronc scheme to collect and pay tips, gratuities and service charges is commonly seen across the hospitality sector. Where these are properly set out and operated, payments made to employees will not then be liable for class 1 national insurance contributions, however being part of this scheme does not affect the NMW regulations.

The October 2019 Queen’s Speech stated that in the future, employers must ensure that all tips are passed on to their employees and there must be a system in place to demonstrate this. We are waiting for the draft legislation and HMRC’s revised guidance.

Accommodation

If you provide employees with accommodation, this can be taken into consideration when determining whether it is appropriate to pay NMW. There is an accommodation offset that is available to use when calculating NMW.

The calculation does depend on whether you charge a rent or it is free accommodation; another area where mistakes can occur.

Employer obligations

It is important that employers carefully consider their obligations under the NMW legislation.

Employers are required to maintain accurate records (and if requested make them available to their employees) to be able to demonstrate that the minimum wage is being paid to employees.

An employer can find it costly to make mistakes and not pay NMW at the correct rate:

  • Penalties are calculated at a rate of 200% of the underpaid wages subject to a cap of £20,000 per underpaid worker (any penalty is reduced by 50% if the unpaid wages and the penalty are paid in full within 14 days)
  • Paying the short-fall of NMW to the employees
  • The reputational damage that may be caused by HMRC’s ‘named and shamed’ listing

Conclusion

Whilst the legislation has been around for 20 years there remains a considerable lack of understanding of the mechanics as to how it works.

  • Employers need to consider the following matters very carefully:
  • What are the rates of pay in the organisation?
  • What records of working hours are being maintained?
  • Is travel time being recognised?
  • Are tips and gratuities being used to supplement employee wages?
  • Are there accurate records of deductions made from an employee’s pay?
  • Has the NMW rate been correctly calculated when providing accommodation?

If you have any queries on the contents of this article or would like to enquire about undertaking a NMW review, please do not hesitate to get in touch.

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FEATURING: Steve Ashworth
Before joining the Bristol office of PKF Francis Clark in July 2019, Steve started his career at HMRC over 30 years ago and then spent… read more
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