National minimum wage UK: pitfalls to avoid as HMRC cracks down

When it comes to national minimum wage, UK firms may think they’re in the clear – but there are some key traps to watch out for, says Cybill Watkins, Product Legislation Manager.

National minimum wage: UK compliance push

We’re currently seeing a big push for national minimum wage (NMW) compliance from HMRC. The authority has established a Proactive Enforcement Team to work across 12 different UK regions.

Organisations are already receiving ‘nudge’ letters, reminder letters, and offers of ‘health checks’. HMRC also plans to revisit a number of large firms that they previously investigated (in the last six years). The purpose will be dual: to check that their recommendations were implemented, and to explore current salaried staff breaches.

Key pitfalls: top five NMW risk areas

The Proactive Enforcement Team will be focusing on five key areas where organisations run the risk of being inadvertently in breach of NMW rules. Pay extra attention to:

1. Salaried excess hours

2. Additional working time

3. Interns and volunteers

4. Weeks in a year for calculations

5. Salary sacrifice payments

Salaried excess hours

This concerns employees who work for an annual salary rather than a monthly minimum wage. As such, it can affect workers on pay scales above what might be expected.

Many people work before or after their official hours, and a degree of flexibility is to be expected with salaried workers. However, the more excess hours they work, the greater the risk of dipping below the statutory hourly rate, unless pay is adjusted appropriately.

The big question all this begs is: how many organisations track salaried employees’ actual working time?  Without this, it’s not possible to accurately check annualised hours and excess hours breaches.

The prevalence of remote working makes this even more complicated. Do employers know if employees are starting early, working through lunch, or finishing late? That valuable asset who always goes above and beyond could inadvertently be pushing the business into a breach of NMW.

Top tip: Encourage workers to provide logs of actual hours worked. Use these to calculate annualised earnings, spot any breaches, and correct them.

Find HMRC guidance on calculating excess hours pay for salaried workers here.

Additional working time

It may seem simple: employees should be paid for their working hours. But in fact, many organisations have been caught out by unpaid additional time. If employees are required (either officially or unofficially) to be at work premises or ‘on duty’, then that time also counts as working time.

Examples of this can include:

• Arriving before the start of the shift to set up equipment, get into uniform, queue up to clock in, and so on
• Security checks that take place before or after official working hours
• Cleaning or tidying up after official working hours
• Taking down, cashing up, and other post-shift actions; if they happen after official working hours end
• Training time
• Additional hours worked without time off in lieu

Top tip: Review working practices and ensure any extra time workers spend isn’t pushing their average hourly rate below the NMW threshold.

Interns and volunteers

The law can be somewhat complex on this point. Many organisations offer work placements, work experience, and volunteering opportunities.

Interns who do regular paid work may qualify for NMW. If they have a promise of future work, they definitely qualify. This applies even if there is an agreement to the contrary. Student interns, where the experience is part of their UK further or higher education course, do not qualify.

Paying volunteers anything more than expenses could push them into the category of worker or employee, both of which require NMW.

Top tip: Be clear on the status of all interns and volunteers and pay NMW where required.

Get more guidance on rights and pay for interns and volunteers.

Weeks in a year for calculations

This is the method to convert contractual weekly hours to annual hours for the purpose of NMW. It’s the employer’s responsibility to ensure that they are paying at least NMW for all hours worked over the year. The employer must also be able to demonstrate how they have reached this figure. There are a number of possible methods, using the base number of weeks in a year as 52, 52.14. 52.18 or 52.2857, as detailed in HMRC guidelines. Be careful, as using the wrong method could cause an unintentional breach due to not paying for the actual number of days in the calendar year.

Top tip: Select the most appropriate method of calculation and apply it accurately and consistently. Keep clear records.

Find more detail on weeks-in-year calculations here.

Salary sacrifice payments

Car schemes, cycle-to-work arrangements, pension contributions, private healthcare – these are just a few benefits that employees may pay for via salary sacrifice. While these provide positive advantages for workers, it’s unlawful for these deductions to take employees below the statutory NMW.

Top tip: Track and monitor the hourly rate earned by any employees using salary sacrifice, to ensure compliance.

What are the consequences of national minimum wage non-compliance?

HMRC has a Reactive Enforcement Team. This is the team who will investigate an employer following complaints to ACAS or HMRC. These could be from a current or previous employee, or anonymously, by anyone who may think that a company is not being compliant.

Although many breaches are inadvertent and often technical in nature, they can still land organisations on HMRC’s public ‘named and shamed’ list. This has negative implications for employee morale, reputation, recruitment, and retention.

Stay up to date and on track

To avoid NMW and other compliance pitfalls, it’s essential to have robust and detailed procedures in place. Payroll and HR teams should be regularly trained and kept up to date with developments in policy and regulations. Working with an expert payroll partner like Zellis provides an extra layer of reassurance and protection.

Discover more guidance on payroll legislation and compliance here.