Minimum wage compliance: the law for employers

In June, the Department of Business and Trade released the details of over 200 companies who had failed to pay staff the National Minimum Wage (NMW) or the National Living Wage (NLW). A number of high-profile UK retailers were included on the list that showed over 63,000 low-paid workers were out of pocket to around £5m.

HMRC investigated breaches, mainly occurring between 2017 and 2019, resulting in financial penalties of about £7m in total. The offending companies also repaid the money their employees were owed.

There is no legal justification for employers not paying the NMW or the NLW. This includes making such payments to employees, and workers.

Employers can be required by HMRC to pay staff at the correct level (going back up to six years), to pay fines and can even face criminal charges.

If an employee or worker elects to complain to the Employment Tribunal instead, they can be awarded pay from the past two years but have strict time limits to comply with (they must complain within three months of the underpayment).

The breaches affect some of the most vulnerable and lowest-paid workers who may be unaware of their legal rights or who may be concerned about any negative repercussions for raising concerns about pay levels.

It may seem inconceivable that large household names are not paying the NMW or NLW correctly, but whilst there are some major high-street brands on the Department of Business and Trade’s list, there are also many smaller companies who are likely to have less sophisticated payroll systems and processes in place. Other employers may be simply unaware of what counts when calculating the NMW or NLW. This includes all time spent travelling between assignments, not counting tips as part of the NMW/NLW and paying staff who typically start work early or leave late, outside their core working hours (performing handover tasks or opening/closing a shop, for example). One large employer has explained that it made genuine errors regarding deductions made to cover staff uniforms (no deductions should be made for items which are connected with the worker’s job).

Employers are required to keep sufficient records to demonstrate compliance with the legislation and make them available when requested. This includes records of hours worked, pay rates, and any deductions made. Employers must check what elements of the job staff should be paid for and what deductions can and cannot be made to ensure that staff are paid correctly. Failure to pay the NMW will require the employer to pay back the worker in arrears. Additionally, employers may be required to pay penalties to HMRC.

If you have questions about the NMW or the NLW, please contact Jane Wheeler.