Last week it was announced that HMRC will lose its remit to police National Minimum Wage (NMW) as all labour market enforcement will move to a new body headed up by Matthew Taylor who last year authored The Good Work plan. That should be good news for employers, as it ought to be an opportunity to reset the approach to enforcing payment of the national minimum wage. During the last couple of years there have been increasing numbers of employers named and shamed for what they consider to be technical non-compliance, although it’s interesting that it is now a year since the last naming and shaming list was published. This perhaps shows that BEIS (the Department of Business, Energy, Innovation and Skills) who ‘own’ the legislation are beginning to realise that both the legislation and the policing need an overhaul.

There have been three main areas where employers have been found to fall foul of the legislation:

• What is the time worked?

• Payments or charges for the ‘benefit of the employer’

• Who should receive NMW?

The first issue is whether those who are paid a monthly salary, can actually be legally treated as salaried workers (one of the four types of permitted workers for national minimum wage). For a worker to be treated as salaried ie paid their salary in equal monthly instalments even though months of the year are different lengths, they must be entitled under their contract to an annual salary and those hours must be specified in, or ascertained in accordance with, their contract.

Most monthly paid workers have an annual salary quoted on their contract but weekly hours. As there are not 52 weeks in the year HMRC will say that this means the annual number of hours cannot be ascertained so they can’t establish what the individual’s hourly rate of pay is. It then follows that the individual cannot be a salaried worker and must be a ‘time worker’. Time workers have to be paid NMW for every hour worked in the pay reference period which for monthly paid staff will vary depending upon the length of the month – simply paying 1/12 each month could well mean that a more junior member of staff is not paid national minimum wage for every hour in the pay reference period.

Net pay deductions

In 2018 NMW press coverage was all about regulation 12 that says that a deduction from net pay “for the benefit of the employer’ causes gross pay to be reduced, even if the deduction is voluntary. In February of this year Middlesbrough football club was successful in defeating HMRC in court after contesting a national minimum wage arrears bill in respect to season ticket deductions. Staff had asked the football club if they could purchase their football season tickets in instalments from net pay. HMRC argued that this money was for the benefit of the employer as it was a recovery of their costs, so reduced gross pay for national minimum wage leading to a breach. It was a very encouraging result for employers that HMRC lost the case, as employees at the club would have been worse off if they had not been allowed to agree this voluntary deduction – hardly the intention of the national minimum wage legislation, in fact quite the opposite. Many other employers though have not been as brave as Middlesbrough in committing funds to challenge HMRC in the courts, choosing instead to settle dubious arrears bills rather than risk unwanted publicity.

Of course, it’s not just about deductions from net pay being deemed to reduce gross pay. Even items that the employee doesn’t pay for at all can be an issue as far as HMRC are concerned. We’ve seen this illustrated most commonly in respect to the definition of a ‘uniform’. With their tax hats on HMRC define a uniform as an item of clothing ‘conspicuously logoed’ with the employer brand, but for national minimum wage they say that any prescriptive dress code is classed as a uniform. So asking an employee, for example, to wear a white shirt and black trousers (common in the restaurant trade) would be classed as a uniform, and if not provided by the employer the cost of uniform being borne by the employee is deemed of ‘benefit to the employer’ (because they don’t have to provide it) so reduces pay for national minimum wage purposes. Numerous high-street chains such as Wagamama’s, have been caught out in this way.

Apprentices and work experience

The final area where in employers have been caught out is in payment to apprentices. Until the training agreement is in place for their apprenticeship, the individual must be paid the national minimum wage rates for their age, not the apprenticeship rate.

The apprentice rate ends for the first pay period after the apprentice’ 19th birthday or after the first year of the apprenticeship if they are over 19. So, any apprentices that are recruited in July or August but don’t begin their offsite training until September, for example, cannot be paid the apprentice rate of National minimum wage until September.


Individuals undertaking work experience as part of ;

• a government scheme, or

• as part an educational course, or

• an EU sponsored programme (Da Vinci, Erasmus, Comenius or Youth in Action) are not required to be paid the minimum wage

Work experience must only be seen as ‘work shadowing’ ie observing tasks, if actual work is carried out independently by the individual they will be classed as a worker for national minimum wage.