Minimum wage demands maximum care - Why complying with National Minimum Wage rules may not be as simple as it seems
06 February 2017
In recent months, high-profile examples of businesses paying their staff less than the National Minimum Wage (NMW) have focused renewed attention on the issue of fair pay. Employers who fail to meet this standard are likely to be in for a rough ride. The press (and social media) are quick to pick up on these stories. And that can cause lasting damage to a reputation.
The focus on inequality also makes fair pay a high-profile political issue. The government, for example, has not only demonstrated that it is prepared to ‘name and shame’ companies that don’t pay the minimum wage (publicly listing 200 offenders in August 2016), it has also introduced a National Living Wage (and increased the rate to £7.50/hour from April 2017). All this is good news for working families. But there’s no question that it raises challenges for employers. Not only do increased rates of pay impose a financial burden, compliance with the new standards can also create some traps for the unprepared.
Falling foul of the rules may mean more than a hit to a business’s reputation (bad enough as that is). The Government also has powers to issue penalties of 200% of the total underpayment/arrears identified, up to a maximum of £20,000 per worker. At the most extreme end of the possible sanctions available are criminal convictions and disqualifications from Directorships. While these are, in practice, rare, they nevertheless demonstrate the seriousness with which the government is approaching the issue of low pay.
And this stiffening of the government’s resolve is already manifesting itself in a number of sectors, including facilities management where we’ve already helped a number of clients with NMW reviews. The sector, with a prevalence of low paid workers and irregular working patterns and practices, has come under particular scrutiny from HMRC. So what should facilities management businesses be focussing on as they strive to make sure they are in compliance with requirements? Our experience suggests a few areas that require attention:
- Working time – where workers are undertaking atypical hours, HMRC often seeks to test the robustness of records held, to determine whether they accurately and precisely record staff working hours.
- Travel –staff in this sector often travel to a number of locations and /or clients per day. We have seen HMRC pay particular attention to the arrangements that are made for travel time, such as how this is recorded and captured and ultimately fed through to a worker’s pay.
- Rates of pay – businesses are sometimes unaware that where a worker’s pay is made up of several (unconsolidated) rates, HMRC will calculate compliance with NMW rates by reference to basic pay only, stripping out any premiums, allowances, or other additional rates of pay. This sometimes leaves workers technically looking ‘underpaid’, even where (overall) their average hourly rate of pay exceeds the relevant NMW rate.
Given that the majority of the ‘named and shamed’ companies only breached the NMW rules for purely technical reasons, we recommend making sure that every business in the sector takes steps to minimise its exposure to such risks. Failure to do so could lead to significant financial, reputational and operational costs.
Spending the time now to ensure that pay processes and controls are correct for NMW purposes could avoid some nasty surprises in the future. Not only does a review ensure you are aware of your potential risk areas but also provides an opportunity to understand how future developments could impact your business.