In relation to minimum pay legislation, Bryan Sanderson, interim chair of the UK’s Low Pay Commission, believes ‘it is crucial that employers understand their responsibilities’. Business Minister Andrew Griffiths also attests that the Government’s “priority is making sure workers know their rights and are getting the pay they worked hard for”.
But following a series of investigations by HM Revenue & Customs (HMRC), a record 239 UK employers were found to have underpaid the National Living and Minimum Wage (NLMW) this year and were named and shamed by the Department for Business, Energy & Industrial Strategy. Each faced fines totalling £1.97 million (US$2.59 million), on top of the £1.44 million (US$1.89 million) that had to be paid back to around 22,400 employees.
“Employers who don’t do the right thing face fines as well as being hit with the bill for backpay,” the Business Minister warned at the time. “The UK’s lowest paid workers have had the fastest wage growth in 20 years… all employers’ should check they are getting their worker’s pay right.”
So just why are so many employers getting it wrong? Many claim their genuine intention is to pay, so why are they failing to do so.
Across the 239 employers that were named and shamed, the top reasons for not paying the NLMW were:
- Making deductions from wages for employment-related costs: Voluntary deductions that are not for the employer’s benefit are permissible. But if deductions end up in the employer’s coffers, it impacts the amount of pay that counts towards the NLMW. For example, the £1 (US$1.32) admin fee charged for administering an Attachment or Arrestment is considered a deduction for the benefit of the employer. The uniform situation is often misunderstood too.
- Underpaying apprentices: Employers need to ensure that apprenticeships are genuine and taking place under a formal training agreement rather than simply renaming an existing employee as an ‘apprentice’. Apprenticeships must also take place within relevant time boundaries. Be careful not to get caught for wage payments in arrears after the apprenticeship has ended because you have failed to change payment rates;
- Failing to pay for travel time: If you expect an employee to travel from one work location to another or travel to attend training courses away from their normal place of work, it is considered under law to be working time. As a result, there will be an impact when calculating national minimum pay rates, and you could well find yourself in breach of the law;
- Misusing the accommodation offset: Do not exceed the permitted amounts or you will be in breach;
- Using the wrong time periods when calculating pay: Are your employees really supposed to receive an annual salary according to their contract? Be careful when using annualised hours to work this situation out as there are actually more than 52 weeks in year. Some people advise that the figure ‘52.17’ is the most suitable average number for the calculation based on the fact that the number of days in a year is either 365 or 366 in a leap year. As a result, if you simply multiply weekly hours by 52 and then divide by 12, you may experience problems.
It is also worth noting that under the Government’s ‘Check your pay’ campaign, employees are now encouraged to review whether they:
- Receive tips;
- Work overtime;
- Have the cost of their work-wear or tools deducted from their wages;
- Are paid for travel while working;
- Often start work early or leave late, but are not paid for this time;
- Had a birthday recently;
- Are allowed to complain on behalf of somebody else – the answer, of course, is ‘yes’.
Understanding what pay elements count towards the minimum wage is complex. Employers often fail to understand that not all pay counts and so it can appear that an employee is being paid the minimum wage when in fact they are not.
Many organisations also fail to understand that salary sacrifice schemes are not about deductions but about contractual pay reductions. Therefore, they reduce staff pay without realising the impact in minimum wage terms.
Moreover, while it may appear very laudable for employees who are retiring shortly to sacrifice some of their salary into their pension scheme, employers must ensure that the move does not reduce their pay to below legal minimums. Employees can, of course, choose to make a non-salary sacrifice contribution of their own that cuts their net pay even down to zero though.
As for uniform issues, employers that impose no uniform but do have a strict dress code requirement will fall foul of minimum wage rules. Expecting employees to work smartly is not an issue but requiring specifics such as ‘black trousers’ or a ‘black skirt’ and ‘smart, black shoes’ would fall within the legal definition of a ‘uniform’.
If employers require this dress code and it is deducted by them, paid to them or even paid to a third party, minimum pay will be reduced. Even if no stipulated uniform exists but clothing is purchased from the employer by a payroll deduction, minimum pay will also be reduced.
It is likewise worth bearing in mind that an increasing number of employers are experiencing long HMRC investigations, site visits, random employee interviews and extraction of their HR & payroll data. Therefore, despite the modern complexities of calculating pay and benefits, it is vital, in your role as a payroll professional, to ensure the organisation knows the minimum wage rules and complies with the law.
Simon Parsons is director of payment, benefits and compliance strategies at HR and payroll services provider, SD Worx. He is also involved in a number of HMRC and government consultative groups and committees. As a fellow of the Chartered Institute of Payroll Professionals and one of the original Masters of Science in Payroll Management, Simon is also a regular author and speaker on payroll matters.
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In relation to minimum pay legislation, Bryan Sanderson, interim chair of the UK’s Low Pay Commission, believes ‘it is crucial that employers understand their responsibilities’. Business Minister Andrew Griffiths also attests that the Government’s “priority is making sure workers know their rights and are getting the pay they worked hard for”.
But following a series of investigations by HM Revenue & Customs (HMRC), a record 239 UK employers were found to have underpaid the National Living and Minimum Wage (NLMW) this year and were named and shamed by the Department for Business, Energy & Industrial Strategy. Each faced fines totalling £1.97 million (US$2.59 million), on top of the £1.44 million (US$1.89 million) that had to be paid back to around 22,400 employees.
“Employers who don’t do the right thing face fines as well as being hit with the bill for backpay,” the Business Minister warned at the time. “The UK’s lowest paid workers have had the fastest wage growth in 20 years… all employers’ should check they are getting their worker’s pay right.”
So just why are so many employers getting it wrong? Many claim their genuine intention is to pay, so why are they failing to do so.
Across the 239 employers that were named and shamed, the top reasons for not paying the NLMW were:
- Making deductions from wages for employment-related costs: Voluntary deductions that are not for the employer’s benefit are permissible. But if deductions end up in the employer’s coffers, it impacts the amount of pay that counts towards the NLMW. For example, the £1 (US$1.32) admin fee charged for administering an Attachment or Arrestment is considered a deduction for the benefit of the employer. The uniform situation is often misunderstood too.
- Underpaying apprentices: Employers need to ensure that apprenticeships are genuine and taking place under a formal training agreement rather than simply renaming an existing employee as an ‘apprentice’. Apprenticeships must also take place within relevant time boundaries. Be careful not to get caught for wage payments in arrears after the apprenticeship has ended because you have failed to change payment rates;
- Failing to pay for travel time: If you expect an employee to travel from one work location to another or travel to attend training courses away from their normal place of work, it is considered under law to be working time. As a result, there will be an impact when calculating national minimum pay rates, and you could well find yourself in breach of the law;
- Misusing the accommodation offset: Do not exceed the permitted amounts or you will be in breach;
- Using the wrong time periods when calculating pay: Are your employees really supposed to receive an annual salary according to their contract? Be careful when using annualised hours to work this situation out as there are actually more than 52 weeks in year. Some people advise that the figure ‘52.17’ is the most suitable average number for the calculation based on the fact that the number of days in a year is either 365 or 366 in a leap year. As a result, if you simply multiply weekly hours by 52 and then divide by 12, you may experience problems.
It is also worth noting that under the Government’s ‘Check your pay’ campaign, employees are now encouraged to review whether they:
- Receive tips;
- Work overtime;
- Have the cost of their work-wear or tools deducted from their wages;
- Are paid for travel while working;
- Often start work early or leave late, but are not paid for this time;
- Had a birthday recently;
- Are allowed to complain on behalf of somebody else – the answer, of course, is ‘yes’.
Understanding what pay elements count towards the minimum wage is complex. Employers often fail to understand that not all pay counts and so it can appear that an employee is being paid the minimum wage when in fact they are not.
Many organisations also fail to understand that salary sacrifice schemes are not about deductions but about contractual pay reductions. Therefore, they reduce staff pay without realising the impact in minimum wage terms.
Moreover, while it may appear very laudable for employees who are retiring shortly to sacrifice some of their salary into their pension scheme, employers must ensure that the move does not reduce their pay to below legal minimums. Employees can, of course, choose to make a non-salary sacrifice contribution of their own that cuts their net pay even down to zero though.
As for uniform issues, employers that impose no uniform but do have a strict dress code requirement will fall foul of minimum wage rules. Expecting employees to work smartly is not an issue but requiring specifics such as ‘black trousers’ or a ‘black skirt’ and ‘smart, black shoes’ would fall within the legal definition of a ‘uniform’.
If employers require this dress code and it is deducted by them, paid to them or even paid to a third party, minimum pay will be reduced. Even if no stipulated uniform exists but clothing is purchased from the employer by a payroll deduction, minimum pay will also be reduced.
It is likewise worth bearing in mind that an increasing number of employers are experiencing long HMRC investigations, site visits, random employee interviews and extraction of their HR & payroll data. Therefore, despite the modern complexities of calculating pay and benefits, it is vital, in your role as a payroll professional, to ensure the organisation knows the minimum wage rules and complies with the law.
Simon Parsons is director of payment, benefits and compliance strategies at HR and payroll services provider, SD Worx. He is also involved in a number of HMRC and government consultative groups and committees. As a fellow of the Chartered Institute of Payroll Professionals and one of the original Masters of Science in Payroll Management, Simon is also a regular author and speaker on payroll matters.
OTHER ARTICLES THAT MAY INTEREST YOU
Trends 2018: UK tax, benefits and minimum wage changes
UK payroll changes continue to pile up into 2019
The UK and crown dependencies: Understanding the tax differences
