National Minimum Wage – are you sure your business is compliant?
Ian Thomas, People Advisory Services Associate Partner at EY, explains the challenges National Minimum Wage legislation poses to businesses.
According to a recent report from the low pay commission into the enforcement of National Minimum Wage (NMW), HMRC’s NMW compliance team is now at record capacity. The increase is a result of a significant uplift in funding in recent years.
Nationally, there are nearly 450 active NMW compliance officers. In 2018/19, HMRC identified over £24.4 million in NMW arrears for over 220,000 workers, its highest ever figure.
HMRC has developed a strategy to increase the amount of arrears identified, typically targeting larger employers within a trade sector, identifying technical minor breaches and then applying them to a large work force.
In 2017/18 and 2018/19, the hospitality and retail sector were specially targeted but, recently, we have noticed a shift of HMRC resource into a broader range of sectors including pharma and technology where HMRC has been concentrating on the following risks to NMW compliance.
Salary sacrifice or salary exchange schemes are arrangements where employees’ contractual pay is reduced, often in exchange for a tax efficient benefit in kind such as childcare vouchers, cycle to work schemes or pensions.
For any of these schemes, the reduced salary should not take employees below NMW as these benefits are not considered as pay for NMW purposes.
Whilst pharma and technology businesses tend to pay above NMW, deductions and salary sacrifices can operate to pull a worker below the minimum hourly rate, which can create a NMW breach. Multiple schemes can often lead to breaches if sufficient checks are not in place for each pay reference period.
Dress code and uniforms
HMRC deem the cost of items which an employer requires a worker to wear to reduce pay for NMW purposes, for example, where an employer guides a worker to wear ‘smart black shoes/clothes’ or ‘non-slip shoes’ in a uniform/dress code policy.
The NMW rules regarding the payment of the apprentice rate are complex and can lead to unintended breaches if not adhered to carefully. For example, an apprentice commencing college two months after starting their post may not be eligible for the apprentice rate until fully signed up with the agreed learning provider.
It is therefore vitally important to ensure that the payment agreement between the employer, the worker and the training provider is NMW compliant.
Unpaid working hours
Employers must ensure all hours worked are accurately recorded and paid. HMRC will interview workers to establish if all hours worked have been paid for. Extra minutes updating co-workers during shift changes, changing into protective clothing before work and the undertaking of training outside of working hours, are all areas that HMRC will investigate.
Recovery of training costs in a final pay reference period may reduce pay below NMW rates. HMRC may consider training to be ‘in connection’ with employment and therefore any cost recuperated from workers reduce NMW pay.
Tool and equipment cost
Any cost to workers for the purchasing of tools or equipment needed in connection to their roles will reduce NMW pay. A technician supplying his own instruments would be deemed, by HMRC, to have reduced pay in the month the expenditure was incurred.
NMW compliance has a really high profile at present and should remain at the fore for businesses looking to retain employees and balance employment costs during this particularly uncertain time.
At EY, we remain committed to supporting and advising our clients in the region, ensuring the best NMW compliance procedures are in best.
• Contact Ian Thomas, People Advisory Services Associate Partner at EY, at ithomas [at] uk.ey.com