National Minimum Wage Compliance: Avoid the HMRC “Name & Shame” List
Hundreds of UK employers were recently named for underpaying staff, many by only small amounts. This has resulted in £6 million in back payments and over £10 million in penalties. Most breaches were administrative errors rather than deliberate underpayment, but the impact to these companies is the same: financial cost and reputational damage.
Through their findings, The Department of Business and Trade has identified the most common reasons for the underpayments, which can help others to avoid making the same mistake.
The Most Common Reasons for National Minimum Wage Underpayment
- Failure to pay the correct rate to apprentices
Apprentices have their own national minimum wage rate for their first year or when they are below 19 years of age. Employers often fall short when they don’t move apprentices onto the correct rate. Confusion over when an apprentice completes training can also cause errors, leading to pay rates that fall below legal levels.
- Failure to pay the uprated minimum wage
- The National Minimum Wage and National Living Wage rates increase each April and it is important to update all hourly rates and salaries accordingly.
- The minimum rates due also increase according to an employee’s age, however it is easy to forget to change pay when an employee becomes eligible for a new rate.
- Unpaid working time takes pay below the minimum wage
Underpayment often happens when all hours aren’t counted resulting in an employee’s average hourly rate slipping below the minimum wage threshold. Examples of missed hour types include overtime, training, travel, sleep-ins, trial shifts, or work beyond regular/salaried hours, as well as delays or errors in final or irregular pay.
- Failure to correctly apply the accommodation offset
If you provide staff accommodation and charge rent, the accommodation offset limits how much can be charged before it affects NMW compliance. Over-charging, even unintentionally, can reduce effective pay below the legal minimum. Employers must review accommodation rates regularly to ensure they stay within the allowable limit.
- Incorrect work type
A worker’s pay can be calculated based on set hours worked, a variable number of hours, output or unmeasured work paid in other ways. Misunderstanding the “work type” can lead to incorrect pay calculations. For example, when salaried workers put in additional hours not captured in their pay structure.
- Worker status error
Treating someone as self-employed or a contractor when they should be classified as a worker or employee can lead to underpayment and NMW breaches. The legal definition of “worker” is broad, and misclassification can result in unpaid entitlements, including minimum wage rights.
- Reductions, deductions, or payments that take pay below the minimum wage
Deductions for uniforms, meals, training costs, or equipment can all reduce pay below the NMW. Even voluntary deductions or repayments, such as staff social funds or salary sacrifice benefits, must be carefully reviewed to ensure they don’t bring pay under the threshold.
How to Stay Compliant
Here are some practical steps to help your business avoid being named and shamed:
- Review pay rates every April: apply new NMW/NLW rates promptly across all staff and payroll systems
- Understand when employees become eligible for higher rates: keep track of when birthdays and age changes mean that employees need to be paid a higher NMW
- Maintain schedule for apprentices: diarise when their first year ends and/or when they turn 19 to ensure they are moved onto the correct rate
- Track working time accurately and understand work type: ensure all hours worked, including training and travel, are paid as well as outputs and other measurable pay items
- Audit deductions and benefits: regularly review any deductions, repayments, or salary sacrifice schemes
- Check accommodation arrangements: confirm compliance with offset limits
- Train your team: make sure payroll, HR, and line managers understand NMW rules and their practical impact
At Willow Pay, we help businesses to stay compliant, ensuring your payroll processes meet legal requirements and your employees are paid fairly.
Contact us to see how we can also do the same for your business.