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National Minimum Wage: Compliance Update – August 2021

20 August 2021

HMRC have published a press release revealing ten outrageous excuses that employers have used to explain why they have not paid the National Minimum Wage (NMW) to their employees. The press release, along with the latest BEIS 'name and shame' list, should act as a reminder to all employers as to the consequences of failing to comply with NMW obligations.

NMW: No excuses

A press release, published by HMRC on the 17th August 2021, has revealed ten "outrageous excuses" that employers have used to explain why they have not complied with the legal obligation to pay the National Minimum Wage.

The release details what HMRC call "the most absurd excuses used for not paying the legal minimum". These include claims that the relevant workers 'agreed' to be paid less than the NMW, that the relevant employee was not a 'good enough' worker to deserve to be paid the NMW, and that the NMW simply did not apply to the business. 

However, NMW applies to all businesses and every employer is required to comply with the NMW rules. Everyone who is entitled to be paid the NMW must receive it and workers cannot sign away their rights. 

The press release is a stark reminder of the potential cost of failing to comply with the NMW rules. In the 2020/21 tax year alone, HMRC helped more than 155,000 workers across the UK recover more than £16 million in pay which was due to them, and also issued more than £14 million in penalties in connection with NMW rule breaches.

Enforcement

HMRC take an active approach to National Minimum Wage compliance. HMRC will review every complaint made by a worker in relation to NMW issues. As well as responding to such complaints, they also launch independent, pro-active investigations targeting businesses where they identify potential risks. 

Employers who are found to have breached NMW rules (whether flagrantly or by inadvertent technical error) are liable to financial penalties, and civil or criminal enforcement measures. They may also be 'named and shamed' publicly by the Department for Business, Energy and Industrial Strategy (BEIS).

The naming scheme attracts significant media attention, and in recent years a number of high profile businesses have appeared on the BEIS list. The approach to these lists tends to be aggressive and employers can appear on the list for technical breaches which may have been resolved and rectified immediately upon identification, often many years prior. The most recent BEIS list, published earlier this month, included 191 employers named for failing to pay £2.1 million to over 34,000 workers.

Getting NMW right

The national minimum wage and the national living wage are the minimum legal amounts that employers must pay their workers. In applying the rates, employers are also required to consider the correct calculation of working hours and related pay, the correct categorisation of workers, and any salary sacrifice arrangements, and the calculations can be complex. There are also various exceptions and special rules (particularly in relation to apprentices).

Failures in NMW compliance are a key risk for business, and one which can be incredibly costly in financial and reputational terms. The public nature of some of the enforcement options open to HMRC and BEIS may affect recruitment capabilities, employee engagement and supplier contracts. 

It is essential that all employers understand how the NMW rules work and seek professional advice and assistance particularly where specific risks are identified or where HMRC raise any enquiries into NMW practices.

DWF has a national team of experienced employment and tax professionals available to discuss any of your NMW concerns.  Please contact us or your usual DWF contact for NMW support and advice.

Authors: Caroline Colliston and Freya Gibb

Further Reading

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