A list of over 200 employers who have breached National Minimum Wage rules by underpaying staff was published by the UK Government on 21 June 2023.
The list includes household names such as Marks & Spencer, WHSmith and Argos. The narrative accompanying the list makes clear that it’s no excuse that underpayments were unintentional and enforcement action, including fines of up to 200% of the underpayment, will be taken by HMRC, nevertheless.
It’s a useful reminder of pitfalls when applying National Minimum Wage (NMW) rules, and the associated government guidance: Check your pay – National Living and Minimum Wage, highlights a number of common mistakes, including counting tips as part of NMW pay, deducting the cost of workwear or tools from pay and failing to identify significant birthdays which should result in an increased NMW rate applying.
While efficient payroll and HR processes can avoid many mistakes, some are more difficult to manage, in particular, issues over deductions and uniform requirements – which was where a number on the list, including well known High Street names, fell foul of the rules. The companies had, as many employers 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 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.
Other household names have inherited underpayments from acquisitions, highlighting the importance of carefully checking records and compliance and making sure any acquisition agreement covers recoupment if required. 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.
Kate Wyatt, Partner in our Employment law team states that "HMRC’s enforcement budget has doubled since 2015 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."
If you have any doubts over specific issues or uncover potential breaches, please contact one of Lindsays Employment team.
This article was published on 7 July 2023.
