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Employers risking fines for National Minimum Wage breaches

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Businesses are at increased risk of landing heavy fines for unintentional National Minimum Wage (NMW) breaches, according to Grant Thornton UK.

The accountancy firm said it has seen an increase in the number of companies being investigated for NMW offences.

Common practices such as salary sacrifices, including pension contributions, and employee workwear policies, mean base pay is reduced.

This can unintentionally drag employee pay under the NMW threshold.

HMRC has increased its NMW enforcement budget by 99% to £26.3 million since 2016.

There are now more than 450 NMW enforcement officers, up from 330 in 2017.

The government has also increased the potential penalties facing businesses underpaying employees; rising from 50% of the arrears owed to workers in 2014 to 200% of the underpayment today.

Over £18.5 million in penalties was given in over 3,300 closed investigations in 2019-2020.

Michelle Perry, associate director, Employer Solutions at Grant Thornton UK said that due to “the myriad of challenges” currently facing businesses, it is inevitable that some businesses could be caught out, even those with the best of intentions.

Speaking to HR magazine, she said: “Often we find that finance teams expect HR departments to ensure there are no National Minimum Wage breaches.

“Therefore, it’s important to determine where the responsibility lies within the business and take appropriate action to ensure there are no compliance gaps.

“Typically, businesses will have basic checks in place for such things as rate changes and simple payroll checks. However, this is not sufficient to properly safeguard against all potential National Minimum Wage infringements as breaches are often in respect of more technical issues. The legislation surrounding this issue is complex and if there is not sufficient expertise available in the business, we recommend working with an advisor to provide technical support.”

Last month retail giants including John Lewis, The Body Shop and Enterprise Rent-A-Car were all found to be underpaying staff.

Perry said other factors that could cause a NMW issue include time records not capturing all time actually worked, clocking in systems that round down, the smoothing of variable pay, and failing to account for the time taken to perform actions such as security checks, putting on PPE or undertaking training.

She added: “There are many changes to systems that businesses can make to help avoid national minimum wage concerns, but the specific requirements will depend on the profile of each business. Breaches may occur in the operation of a business, and this may not be something that’s immediately obvious to HR or finance teams.

“The key is to fully understand all aspects of a business that could impact on whether National Minimum Wage is paid to employees and ensure there are appropriate systems in place to manage the risks.”

She added: “A simple starting point to help identify issues would be training for all management personnel and not just those in HR and finance. All employers should take a proactive approach to National Minimum Wage compliance and not wait for HMRC to find the issues.”

In April 2020 several NMW related changes came into force which Perry said it is possible some employers will have overlooked.

This included changes to the definitions of salaried workers, employers being able to choose their own calculation year, changes to NMW and salary sacrifice together with the reintroduction of publicly naming and shaming businesses that was suspended in 2018.