Businesses face being caught out by the second compulsory pay rise in six months as new rates take effect from 1 April, and new powers to fine, name and ban non-compliant company directors kick in.
As the government launches a new awareness campaign around the national minimum wage, employers need to be aware that for younger workers this will be the second compulsory pay rise in six months.
Minimum wage fines
Since last year the government has had the power to impose penalties of up to 200% of the wages owed, up to a maximum of £20,000 per worker, with a minimum payment of £100 per worker. Failure to pay the minimum wage could also result in a company director being banned for up to 15 years.
There was a substantial increase in reports of employers not paying the national minimum wage in 2015-16, according to the National Audit Office. Over the past 12 months, 58,000 workers were recorded as being owed money by their employers, more than doubling the 26,000 recorded in 2014-15.
Since February 2013, the government published a 'name and shame' list of employers that have failed to pay the minimum wage, with 687 firms named so far, including retailers Monsoon, Accessorize and Brighton and Hove Albion football club.
Along with a total of £3.5m announced in owed wages, offending organisations have also been fined a total of £1.4m.
However, none of the 687 companies have faced criminal charges, and MPs on the business select committee commented earlier this week that these penalties on employers were still not enough to stop others from breaking the law.
The rise in hourly rates is captured here:
|For pay periods starting after||25 and over||21 to 24||18 to 20||Under 18||Apprentice|
|1 April 2017||£7.50||£7.05||£5.60||£4.05||£3.50|
|*1 October 2016||£7.20||£6.95||£5.55||£4.00||£3.40|
|1 April 2016||£7.20||£6.70||£5.30||£3.87||£3.30|
|The rate for workers aged 25 and over is referred to as the national living wage (NLW), and is currently at a rate of £7.20. In future, increases of the NMW and NLW will take effect from 1 April each year, not 1 October as previous.|
Traps to avoid
In its latest employer bulletin HMRC addressed the ‘top five errors to avoid’ to ensure employees receive the correct rate of pay:
The Revenue recommends a regular check of each worker’s wage rate to avoid running the risk of underpaying workers. This can happen when employers fail to implement the annual rate increases, miss workers key birthdays as they move from one age band to another, or fail to apply the apprentice rates correctly.
Deductions for items connected with the job such as uniforms, services provided by the employer such as meals or transport, or accommodation beyond the permitted accommodation off-set amount could push workers’ pay below minimum wage rates.
Mistakenly including top ups to payments that do not count as pay for NMW/NLW purposes, such as shift allowances under certain circumstances or customer tips or bonuses can cause employers issues when calculating a worker’s pay.
Status of the worker
A common error is when employers treat workers as volunteers, interns or self-employed when they should be classed as workers. For more details on who is entitled see ‘who gets the minimum wage’, and to help you decide if an employee should be classed as a worker use the employment status indicator tool.
A potential risk around the minimum wage is not including all the time a worker is working. Employers run the risk of ignoring unpaid working time: additional hours worked but not paid. These could be short but regular periods of time used for processes like shutting up shop or clearing security after a shift has ended, or could be longer periods of time spent training.
Other working time errors can occur with travelling time if it’s in connection with the worker’s job, such as between assignments, and sleeping time.
For more detailed guidance on calculating the correct rate of pay see ‘Calculating the minimum wage.’
About Tom Herbert
Tom is editor at AccountingWEB, responsible for all editorial content on the site. If you have any comments or suggestions for us get in touch.