National Minimum/Living Wage changes and the risks to businesses of getting it wrong

As we now head towards the end of April 2024, the new rates of pay for National Minimum/Living Wage (NMW/NLW) should have been updated in your payroll and paid to your workers.

Employers will often insist that they pay the correct rates of pay and the majority do.  It can be quite insulting to a business to suggest that they don’t pay NMW/NLW, but it is easy to get it wrong; in an area of legislation that is far more complicated than many employers realise.  Getting it wrong can be costly both financially and reputationally.

What changed?

On 1 April 2024, the planned increase in the NMW/NLW came into force. This move increased the minimum wage from £10.42 per hour to £11.44 per hour for everyone over 21. Along with an increase of the hourly rate, the age it applies from was lowered from 23 to 21 years of age, meaning an even higher increase for workers in this age group.

Chancellor Jeremy Hunt expressed his reason for doing this was to ensure that work remains financially rewarding for individuals. He emphasised his reliance on recommendations from the Low Pay Commission, vowing to follow their guidance. The rise in the NLW to £11.44 per hour translated into a pay rise for an estimated two million workers.

The risk of getting it wrong is not just monetary – naming and shaming businesses who pay below the minimum wage

Many employers don’t pay as much attention as they could do to ensure adequate checks are carried out to prevent workers being paid below the minimum wage. HMRC is keenly aware of this issue, evidenced by the most recent list of businesses being ‘named and shamed’ published in February 2024.

The previous list published in June 2023 named 202 employers for failing to meet the legal minimum wage requirements for their workforce from the results of investigations carried out from 2017 to 2019. The most recent publication (issue 20) lists the number of businesses as over 500, with worker repayments totalling nearly £16 million, based on investigations from 2015 to 2023.

The list of culpable entities features a mix of prominent corporations, including Estee Lauder, EasyJet, Greggs, Currys, Game and River Island, alongside smaller businesses and sole proprietors. The probe revealed that a staggering 172,000 workers had been underpaid, prompting employers to rectify the owed wages while incurring an additional fine.

It’s important to note that most instances of underpayments stemmed from inadvertent errors rather than a deliberate refusal to provide fair compensation. Many of these errors arose from employers wrongly deducting pay from their workers’ wages, as well as due to incorrect remuneration for the hours worked. A large proportion also resulted from employers applying the wrong apprentice wage rates. Therefore, the data demonstrates that most instances of underpayment arise from genuine oversights.

In addition, any underpayment in an earlier year is calculated using the current rates of NMW/NLW and the penalties for getting this wrong are potentially 200% of any underpayment.

Examples of workers not being compensated for additional time

A common instance of this is when a minimum wage worker is required to arrive at work before their shift in order to open a shop or café, and they aren’t compensated for the additional time. In this case, they effectively receive less than the NMW/NLW for their total hours worked and such cases can accumulate into substantial underpayments over time.

Another example is when the basic wage exceeds the NMW/NLW, however there are periods of time where the worker is ‘on duty’ while not being compensated, as might be the case for workers required to drive extensively between client visits (and not being paid for it), or on compulsory unpaid training days.

Additionally, employers must not rely on commissions or tips to fulfil the NMW/NLW requirement; these must always be provided on top of the minimum wage (even for commission-only workers).

In some instances, employers may provide housing to workers as part of the job, which can offset wages, legally allowing wages to fall below NMW/NLW, but only up to a maximum reduction of £69.93 per week from April 2024.

HMRC’s method of exposing the firms neglecting their duty to NMW/NLW results in reputation loss as well as financial loss from the fines. It’s for both of these reasons, as well as to provide a fair and liveable wage for workers, that employers must always keep up to date with minimum wage changes such as the one just experienced in April.

Most employers believe they are correctly paying NMW/NLW and most are.  However, it is very easy to make a mistake or take a deduction from a worker’s salary that then brings the worker’s pay during a pay period below NMW.  This is regularly evidenced by HMRC’s ‘name and shame’ list.

If you would like to discuss any aspect of NMW/NLW or would like us to undertake a review of your records to ensure you are compliant with NMW/NLW, then please get in contact with the employer solutions team.