Maximum focus on minimum wage

Why it pays for employers to know the risks – and the repercussions if they get it wrong

Offering people at least the National Minimum Wage (NMW), or the National Living Wage, is the right thing to do, especially with the cost-of-living crisis hitting workforces hard. But it’s also the law and any breach can harm your brand as well as your bottom line. 

Over 20-plus years, a statutory minimum wage has become the cornerstone of the UK labour market, shielding some of the most vulnerable people in society. But the NMW is complex, so even purpose-led organisations can get caught out if there’s a disconnect between policy and practice. 

A change at the top of HMRC’s NMW team has led to an increase in compliance activity, and a little-known rule amendment could have big implications for companies. 

A lot is happening, so if this isn’t already a priority in your boardroom, it’s a good time to make it one. 

Protecting your brand name

In June, the Department for Business and Trade (DBT) brought back the NMW Naming Scheme, which publicly calls out employers paying below the legal threshold. 

It listed 202 companies but because of a huge backlog, organisations found to have breached the rules as far back as 2019 still face being named, even if they’ve corrected past mistakes.

A variation to the Department’s policy also means businesses now only get the once-standard 10 days’ notice of a naming round if they make a formal representation to the DBT. Those that don’t, could find out when it hits the headlines.

And that’s also the case for companies with closed reviews that are waiting to be named. They may expect to benefit from the 10-day period as it was customary when their case was active, but the new rule around representation applies to the backlog too. 

Greater scrutiny from HMRC

HMRC is also taking a geographic approach to compliance, targeting towns and cities including, to date, Bradford, Belfast, Glasgow and Birmingham. HMRC is writing to thousands of businesses to remind them of their responsibilities and encourage them to correct any NMW issues. 

Shortly after, HMRC runs a targeted employee campaign in that area, inviting people to raise concerns if they don’t believe they are being paid the NMW. It will then open enquiries into businesses and, if breaches are found that amount to £500 or more in total, per company, they will likely be named and will face a 200% penalty (reduced to 100% if paid within 14 days). 

Alongside these, two new schemes are testing the effectiveness of HMRC’s compliance activity.

The repeat visits programme is aimed at businesses that have previously been reviewed and focuses on issues already identified by HMRC, as well as other compliance areas. 

Meanwhile, the large employer support programme selects companies to voluntarily discuss their compliance, to help HMRC better understand the challenges big businesses face in meeting their obligations. It also gives companies the chance to get HMRC’s input into technical areas of potential non-compliance – an opportunity well worth exploring.

What are the common pitfalls?

NMW breaches can damage your brand, impact consumer confidence, make other businesses reluctant to work with you and stop you attracting and retaining the best talent. In exceptional circumstances, directors can be held criminally liable. 

And while the board is likely to assume that HR and Payroll have this covered, the reality when it comes to ‘on the ground’ working practices can be different. Take these examples…

1. A well-paid employee for a financial services firm is allowed to make large additional voluntary contributions (AVCs) into their pension through salary sacrifice. This could mean the leftover salary is less than the NMW. 

2. A call centre colleague who officially starts work at 9am is at their desk at 8.45am, so they have enough time to log on and get ready to take calls. If that time isn’t paid, it could be a breach of NMW rules. 

3. Company policy states that a hospitality worker doesn’t need to wear black clothing, but their line manager thinks it looks more professional and insists on black trousers. The employee could have a ‘deemed’ reduction to their pay to meet the cost of those trousers and what’s left could fall below the legal threshold.

In all these cases, the problem is a mismatch between assumption and reality, rather than an unscrupulous employer. But without the right processes in place, for example between the provider, Payroll and HR in the AVC example, issues can go unnoticed.

How can you reduce the risks?

Getting buy-in from the board is essential because this is a reputational issue. If a company underpays workers by as little as £500 in total, it will be named publicly. And chances are, the press will pick it up. 

So, you need the right policies, processes and controls together with effective engagement with your management and internal audit team. 

Many organisations also benefit from working with external firms, like us, that conduct regular pay checks to identify issues before they lead to NMW breaches – and penalties with costly implications.