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The Job Retention Scheme pays 80% of wages. Unfortunately, it means many employees are not receiving the National Minimum Wage (NMW). Don’t assume this matters less in the current circumstances. Employers that don’t operate the National Minimum Wage correctly will likely fall foul of the legislation. This could prove costly, and embarrassing.


Employers fail to operate the National Minimum Wage correctly

On 31 December 2020 the Department for Business, Energy & Industrial Strategy publicly identified those breaching the regulations. It is two years since this happened. The government fined 139 employers, including well-known national businesses, for failing to operate the National Minimum Wage correctly. Beware, even where the average wage shortfall is insignificant, HM Revenue & Customs will take action. The smallest underpayment averaged just £6.85 per employee.


Common mistakes

Generally, there are four problem areas. Sometimes, employers fail to operate the National Minimum Wage correctly when making deductions from wages. They get it wrong when unpaid working takes the average wage below the NMW rate. Employers can pay the incorrect rate to apprentices and young people. Finally, there are often issues with family-owned companies.


Deductions from wages

Not every deduction leads to a breach of the NMW. Exceptions include deductions for tax, National Insurance and pension contributions. Accidental overpayment of wages is not an issue. Neither are repayment of an agreed loan and court orders.


Benefit to employers

Fundamentally, problems arise when a deduction is deemed a ‘benefit’ to employers. Any deduction reducing the average wage payment below NMW breaks the rules. It occurs when employers pay for workwear, PPE or tools. Another example is employer-provided car parking facilities.

Rule breach

Of course, some payments fall outside the scope of the NMW. One clear example is court orders. However, employers can’t claim the cost of operating the scheme. Including it in a wage deduction breaks the rules. It makes no difference if the employee agrees. Voluntarily paying for goods via a repayment through their wages breaches the legislation. That said, there is no problem if the employee has an agreed loan with the employer or makes payment direct.


Unpaid working time

Employers should not treat the following as unpaid work: security checks at the end or beginning of a shift, for example. Rounding down time worked to the nearest hour. Or travelling time in connection with the employment. But not ordinary commuting.


Using the incorrect rate

Tax codes and National Insurance rates change with the tax year. Employers might expect the National Minimum Wage to follow suit. It doesn’t. Rates change on April 1 each year.


Young workers

Occasionally, errors occur when dealing with young workers. Employers forget to raise the appropriate apprentice rate on their birthday. Or they don’t increase the rate when employees turn 25.


Family businesses

Typically, an employer’s family members are exempt from the NMW. Especially if they live in the employers’ home. However, there is an exception to this rule. An incorporated firm cannot be treated as a ‘family business’. Therefore, the National Minimum Wage applies.


Directors of limited companies

Commonly, director/shareholders view the business as theirs. Many think they’re exempt from the National Minimum Wage. This is not the case. Certainly, directors’ duties are exempt. However, any work under a contract deemed to be duties of employment is subject to NMW legislation.


Seek advice to operate the minimum wage correctly

It’s easy to see how employers can breach the regulations.Find out more about the NMW and Living Wage on Gov.uk.

If in doubt, call us now on 01785 243276. We’ll help you to operate the National Minimum Wage correctly.

Find out more answers to your pressing payroll, taxation, self-employment, retirement and other questions at Ask Howards.