The latest National Minimum Wage (NMW) rise is welcome. Especially in the current climate. As is the uplift to the National Living Wage (NLW). Employers must pay their workers the appropriate rate. Otherwise, they could fall foul of employment legislation. This could prove costly. Let’s look at the latest changes.
Traditionally, rates increase in April each year. From 1 April 2023, the NMW improves to £10.18 for 21- to 22-year-olds. Eighteen- to 20-year-olds receive £7.49. For 16- to17-year olds and apprentices the rate is £5.28. Meanwhile, the National Living Wage rises to £10.42. This change affects workers aged 23 years and over.
In 2022 HM Revenue & Customs (HMRC) issued 696 penalties. These amounted to £13 million. A sobering thought. So, it’s vital that employers operate the NMW correctly. That said, it’s easy to make a mistake.
Generally, there are four key areas where errors arise. Making deductions and payments from wages for example. Another common fault is when unpaid working takes the average wage below the NMW rate. Often, apprentices and young people receive the incorrect rate. Finally, issues can arise with family-owned companies.
It’s by no means the case that every deduction leads to a breach of the NMW. Exceptions include deductions for tax, National Insurance and pension contributions. Accidental overpayment of wages isn’t an issue. Repayment of an agreed loan doesn’t represent a problem. Neither does a court order.
Sometimes, a deduction is deemed a ‘benefit’ to the employer. This is when issues can arise. Similarly, a deduction that reduces the average wage payment below the NMW can be problematic. This tends to happen when employers pay for workwear, PPE or tools. Another example is employer-provided car parking facilities.
Yet not all payments from wages relate to the NMW. Court orders, for example, are outside its scope. Employers can’t claim the cost of operating the scheme though. Including it in a wage deduction breaks the rules. Even if the employee agrees to this. Voluntarily paying for goods via a repayment through your wages breaches the legislation. That said, there’s no problem if an employee has an agreed loan with their employer. They can also make payment direct.
Always bear in mind unpaid working. For example, extra activities such as security checks at the end or start of a shift. Also rounding down time worked to the nearest hour. Plus travelling time in connection with the employment but not ordinary commuting.
Sometimes, errors relate to the payment of young workers. Employers forget to raise the appropriate apprentice rate. Or fail to increase the rate when employees turn 23.
Typically, an employer’s family members are exempt from the NMW. Especially if they live in the employers’ home. However, an incorporated firm is the exception to this rule. You can’t treat it as a ‘family business’. Therefore, the National Minimum Wage applies.
In our experience, director/shareholders of limited companies view the business as theirs. Therefore, they may think they’re exempt from the NMW. They are not. Yes, directors’ duties are exempt. However, any work under a contract deemed to be duties of employment is subject to NMW legislation.
Whilst the National Minimum Wage rise is good news, it’s important to operate the scheme correctly. Employers can easily, and unwittingly, break the rules. If in doubt, seek professional advice.