Last year HMRC found 200,000 workers being paid below the national minimum wage (NMW). It’s a pretty shocking figure and resulted in £15m being repaid to workers and £14m in fines for the 600 companies caught.
It’s safe to assume that the majority of employers didn’t set out to cheat employees out of their hard-earned cash. After all, the average underpayment was only £75.
So why are so many companies falling foul of the law?
National minimum wage actually isn’t as straightforward as it looks. A lot of companies caught out noted that underpayments were down to ‘system’ issues.
So if you’re a business owner, what do you need to do to make sure you don’t slip up?
Gross pay divided by the hours actually worked equals hourly wage. Just because you are paying someone a salary of £19k does not mean you are meeting NMW requirements – if they are working on average over 48 hours a week you’ll probably be paying them below NMW.
Minimum wage is assessed each payment period, so if you are paying wages monthly, it’s each month, if you’re paying weekly it is each week. So in each time period the gross wage divided by the number of hours worked needs to meet the NMW.
Say happy birthday!
The NMW rates go up as people get older and a lot of payroll software does not automatically flag this for you. Each time you pay your staff; check if they have had a birthday since the last wage run.
Know where they live
If staff rent their accommodation from you (even if you own it personally and not through your company), part of the rent they pay will reduce their gross pay when calculating national minimum wage.
Salary sacrifices can be a great way to give benefits to staff, but beware: For most salary schemes, salary sacrifice is subtracted from gross pay when calculating minimum wage.
Bonuses don’t go that far
An annual bonus will not raise an employees pay on an annual basis for national minimum wage purposes. It only has an impact around the time it is paid.
Know your rates
The rates of National Minimum Wage and National Living Wages (for staff 25 and over) change each year, make sure you are on top of them.
And finally – listen to your employees!
If you are underpaying your employees (and they notice it), they will tell you. Sort it out! Pay them what you have missed and correct it going forward. If you don’t, expect a call from HMRC. There is a helpline and an online form for employees to report underpayments and HMRC have a 100% follow up rate on these enquiries.
For any more advice on any payroll, bookkeeping or accounting issues, please feel free to contact Tim and Charlotte at Monty Accounting Solutions based in Hungerford.