Charities may be at risk of accidentally breaching National Minimum Wage rules despite their best intentions.
We recommend a cautious approach to ensure charities and social enterprises do not fall foul of paying at least the legal minimum wage as the UK Government promises to get tough on those who do not. A recently published list of 202 employers who had breached National Minimum Wage (NMW) rules, including household brands, was widely reported. There were no third sector employers in that list.
However, with HM Revenue and Customs (HMRC) having the power to impose fines of up to 200% of the underpayment, charities can’t afford to be complacent - particularly given the tight financial margins in which they operate.
The message from the Government is clear: There is no excuse for under-payment, even if unintentional.
And, while we know that charities across Scotland work hard to do their best by their employees, publication of the list was a useful reminder of pitfalls when applying the NMW.
Common mistakes include:
● Failing to identify significant birthdays which should result in an increased NMW rate.
● Counting tips as part of NMW pay.
● Deducting the cost of workwear or tools from pay.
Another common mistake - which care charities in particular may encounter- is potential underpayment when staff are required to work additional time but are not paid, including shift handover meetings, travel between appointments and training.
While efficient payroll and HR processes can avoid many mistakes, some are more difficult to manage, such as issues over deductions and uniform requirements. Some companies which have fallen foul had, as many do, set a dress code requiring staff to wear their own shoes and clothes of a specific colour or type either with or without additional company provided uniform.
Government guidance makes clear that deductions from wages to cover the cost of items connected with the job may result in underpayment. Requiring staff to follow a specific dress code is considered by HMRC to be ‘expenditure in connection with employment’ which reduces pay for NMW purposes, including where the employee can use their existing clothing.
When considering mergers in the third sector, it is also important to check potential partners’ records and compliance to ensure the terms of the tie up address any underpayments or potential problems. Investigations and enforcement can relate to up to six years before the notice of underpayment, so making sure appropriate records are available is vital.
Automated processes may also result in inadvertent underpayment – for example rounding down shift times or time recording systems not covering all time worked – as can salary sacrifice arrangements and deductions for saving clubs.
The current NMW rates are £10.42 for those aged 23 and over, £10.18 for 21 and 22-year-olds, £7.49 for those aged 18 to 20 and £5.28 for under-18s and apprentices.
If you have any doubts over specific issues or uncover potential breaches you would be wise to seek expert advice.
It is worth keeping in mind that HMRC’s enforcement budget has doubled since 2016 and NMW compliance is a focus. Keeping up to date with current guidance, regular audits of compliance and early identification means inadvertent breaches can be resolved promptly and risks minimised.
This article featured in Third Force News magazine in October 2023 (p18).
