Ensuring employees are paid the right amount is a constant concern for payroll and HR professionals. But it’s perhaps especially daunting for those that operate in typically low-pay industries such as retail, hospitality, childcare and social care, where there is more likely to be a higher proportion of jobs that are paid the National Minimum Wage (NMW)/National Living Wage (NLW).

While the NMW was introduced more than two decades ago (and the NLW more recently), non-compliance with minimum wage policy remains a notable issue. According to data from HMRC and BEIS, an estimated 341,000 jobs were paid below NMW/NLW in 2017, which accounts for 1.2% of all 16+ jobs in the UK. As a result, employers paid nearly £30 million in arrears (£15.6m) and penalties (£14m).

How exactly the government will continue to enforce the NMW/NLW in the future is unclear at this stage. What is clear, however, is that employers are still being caught out due to the complexity of the rules – and this could be avoided with a better understanding of the most common pitfalls.

Here are five ways you could be accidentally breaching minimum wage rules.

1) Understanding of working time

For organisations that typically employ staff on a permanent basis with very clear and predictable working arrangements, there might not be too much ambiguity around what constitutes ‘salaried’ working time.

Yet for employers in industries where staff are commonly paid on an hour-by-hour basis and don’t necessarily work to a consistent schedule, it can be quite a bit more complicated.

Ultimately, the government views ‘salaried’ working time as not only time spent at work, but also any time:

  • Spent travelling for business reasons (e.g. between different company locations)
  • Spent waiting to start or finish work (e.g. time spent queuing to clock off)
  • Spent being ‘on-call’ or standby near their place of work (e.g. if working in social care)

Failing to pay the NMW to staff who have spent additional time in areas such as the above, can result in a breach in compliance.

2) Deductions for uniforms

It’s perfectly reasonable for companies in certain industries to require staff to wear specific items of uniform. However, if you ask employees to pay for a required uniform out of their salaries, you need to be conscious of how it relates to minimum wage rules; numerous high street chains have already been caught out after overlooking this.

The long and short of it is that you cannot ask employees to pay for a required uniform if it will bring their wages below the minimum rates. Nor can the cost be spread across multiple pay reference periods – any and all deductions will count for the pay reference period in which the purchase was made.

Casual and zero-hours staff are also entitled to reimbursement if they must pay for required uniform items – that is unless there is a contractual agreement in place to stipulate otherwise.

By contrast, if the work uniform is optional – and the employee freely chooses to pay for it – then deductions will not reduce the minimum rate of pay.

3) Salary sacrifice

Salary sacrifice is common nowadays in return for some sort of non-cash benefit in kind. That might be health insurance, vouchers for childcare, or some sort of voluntary savings scheme.

But as popular as they may be amongst employees, arrangements like these are not allowed to reduce pay to below the level of the NMW/NLW. A high street grocery chain was recently penalised by HMRC for running a voluntary savings scheme which resulted in the underpayment of staff.

Therefore, if your organisation does wish to offer these sorts of benefits, procedures must be put in place so that any voluntary salary deductions are capped at a level which means that minimum wage rates are maintained.

4) Apprentice and work experience pay

When should apprentices be paid the apprentice rate of pay, and when should they be paid the national minimum rate of pay?

This is another question that can cause confusion and, consequently, non-compliance. There are some specific rules to comply with.

First of all, apprentices must be paid the NMW until a formal training agreement is in place for their apprenticeship.

After that, the rate of pay will depend on the individual’s age and how far they are into their apprenticeship:

  • If the individual is aged under 19, or aged over 19 but still in the first year of their apprenticeship, they are entitled to the apprentice rate of pay
  • If the individual is aged over 19, or have completed the first year of their apprenticeship, they are entitled to the minimum wage for their age

And how about work experience?

Work experience schemes don’t typically require individuals to be paid the NMW, so long as no actual work is carried out on an independent basis by that individual. Any work experience taken as part of a government, educational, or EU-sponsored schemes is also exempt.

5) Tips and gratuities

Finally, and perhaps most simply, tips, service charges, and gratuities – which are most likely to be received by staff in the restaurant and hospitality industries – cannot be used to make up the NMW.

How Zellis can help

At Zellis, we know that understanding and adhering to minimum wage legislation can be extremely complex. Getting caught out is all too easy – but recovering from the potential financial and reputation damage can be difficult.

To help organisations with meeting their national minimum wage requirements, we have introduced a new module as part of ResourceLink 23 to help them monitor compliance by running NMW/NLW reports at individual and various group levels. Users will be notified automatically if and when an individual’s pay falls below the minimum rates so that corrective measures can be taken before finalising the payroll.

If you’re an existing customer and want to learn more about this new feature, contact your account manager for assistance.

Or if you’re in the market for a new payroll and HR engine, check out more information on ResourceLink or talk to one of our experts today.