HMRC are actively checking National Minimum Wage (NMW) payments as well as taking a new approach to its compliance strategy this year, find out more below.
After 18 months of silence, HMRC have just released their naming and shaming list of employers who have failed to pay NMW rates to their workers. Many high-street names have appeared on that list, with significant underpayments identified and penalties being levied. You can read the full list here.
NMW rules are complex, and all the non-compliant employers have stated that the unintentional errors leading to significant underpayments were due to misinterpretation of the rules, particularly around employee uniforms and/or having a contractually required dress policy.
Historically HMRC have adopted a sector specific based method for carrying out NMW enforcement inspections, as is evidenced by this published list. To help tackle the issue of genuine employer mistakes, HMRC are also starting a new geographical-focused initiative.
What is the HMRC geographic-focused initiative?
HMRC has recently reported that almost 2,800 workers in Birmingham were underpaid by £775,000 last year. This new NMW initiative has resulted in more than 8,000 nudge letters being sent to employers in both the Birmingham and Bradford areas. Other geographical areas will follow in due course.
These nudge letters highlight the common errors made by employers and give the opportunity for the recipient employer to internally review their procedures, make any necessary changes to processes, and correct any underpayments before HMRC carry out their planned NMW Compliance Inspection.
If corrections are not made before HMRC carry out their inspection the business, and the business fails to comply with NMW regulations (in addition to making repayments of underpayments for 6 years at the current NMW rate in force), employers could face penalties up to 200% of their arrears, and being publicly named. Public shaming can often be more damaging to employers than physical financial repercussions.
Common NMW mistakes you could be making:
- Deductions from pay or the employee having costs for specific items connected to the job, such as uniforms.
- Failure to pay employees for the hours they have worked, often due to lack of internal controls and processes identifying working time, or not recognising what activities are working time for NMW purposes.
- Incorrectly including elements of pay in NMW calculations that are disregarded for NMW purposes, such as premium overtime rates and allowances.
- Not paying apprentices correctly.
Here are some changes your business can adopt to help ensure NMW penalties are avoided:
- Regularly review your company’s policies and procedures.
- Act don’t ignore – Address any difficulties with NMW early to limit any financial and reputational damage.
- Consult with an NMW expert – NMW rules are complex, and accidental mistakes are surprisingly common.
NMW rates increased significantly in April 2023, and any underpayments found will need to be repaid at these current rates.
What are the current National Minimum wage rates for 2023?
The current National Minimum Wage hourly rates are as follows:
| Age 23 or over (National Living Wage): | £10.42 |
| Age 21 to 22: | £10.18 |
| Age 18 to 20: | £7.49 |
| Age under 18: | £5.28 |
| Apprentice: | £5.28 |
Further information about the National Minimum Wage, including who it applies to, can be found at GOV.UK.
Expert National Minimum Wage advice from PKF Smith Cooper
HMRC continue to police the operation of NMW, and it is imperative employers do not get complacent when it comes to their NMW compliance.
At PKF Smith Cooper, we believe prevention is better than cure, which is why our team of expert Employment Tax accountants promotes a proactive approach to National Minimum Wage compliance. With tailored NMW support, you can avoid facing significant financial liabilities and being included on the naming and shaming list.
If you receive a nudge letter of notification of an inspection from HMRC, take advice immediately before responding, so that you can understand and minimise the potential risks
Take control of your employment policies and procedures and avoid significant NMW penalties today. Contact our experienced Employment Tax team.
