The National Minimum Wage: How to adhere to the requirements
In recent months, there has been no shortage of press coverage relating to the payment of national minimum wage and the alleged failure of many businesses to adhere to the requirements of the legislation in this regard. Whether this is because what is counted towards working time is not understood or because the introduction of the national living wage has resulted in some creative budgeting techniques, there are many articles aimed at shaming businesses who are thought to be getting it wrong.
The national living wage was introduced on 1st April 2016 in an attempt to ensure that workers aged 25 and over receive (for the time being) at least £7.20 per hour worked (a 50p increase on the previous regime). Whilst in isolation this does not seem like a significant increase, the Regulatory Policy Committee anticipated that the direct cost of the introduction of the national living wage would exceed £804 million. In order to avoid or at least temper the impact of this additional cost, some businesses have sought to limit or indeed remove other employee benefits, whereas other businesses simply appear to be calculating the payment of national minimum wage incorrectly.
Whatever the appropriate rate, in order to calculate whether a worker has actually received national minimum wage it is necessary to divide the total number of hours worked by an individual over the pay reference period (i.e. the period used for calculating hourly pay) by how much the worker actually earned in that period. The total number of hours worked includes time work, salaried work, output work and unmeasured work depending on the type of work carried out by the worker and the amount earned, must be calculated on the basis of gross pay less any deductions for emoluments which should not be counted towards the national minimum wage calculation, such as premiums paid for overtime or shift work.
Whilst the method of calculation may not always be straightforward, we would encourage businesses to ensure that they adhere to the requirements of the legislation, if only to avoid the penalties associated with failing to do so. As an example, the Secretary of State has appointed HM Revenue & Customs (HMRC) as enforcement officers to enforce the payment of national minimum wage; the process for which can be initiated either upon receipt of a complaint or as a result of risk profiling.
Where an investigation takes place and it is determined there has been a failure to pay national minimum wage, notice of underpayment will be provided. This notice will set out the arrears of pay to be paid together with a penalty for non-compliance. Importantly, to quantify arrears of pay, HMRC will calculate the underpayment by reference to the current national minimum wage rate – rather than the rate which applied at the time the underpayment occurred. In addition the Department for Business, Innovation & Skills has the ability to “name and shame” those businesses which fail to comply with their obligation to pay national minimum wage, so there is an additional reputational reason for ensuring compliance.
A particularly well publicised example of an alleged failure to ensure that workers are paid national minimum wage concerns the sports retailer, Sports Direct who face an investigation which could see the company face the highest fine since the national minimum wage legislation was brought into force in 1999. This is, at least in part, as a result of its practice to have staff undergo unpaid and compulsory searches at the end of their shift. The consequence of which is that some staff are being paid less than minimum wage over a particular reference period.
If you are unsure about how to calculate the payment of national minimum wage or have any questions in relation to the new national living wage, please do not hesitate to contact us.