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National Minimum Wage rules: more complicated than you think


Published: 11 Jan 2022 Update History

A number of high-profile employers have been caught out by the National Minimum Wage rules. ICAEW has resources to help members keep their employers or clients compliant.

BEIS’s National Minimum Wage (NMW) naming and shaming list currently features 191 companies that have underpaid workers. This includes large, recognisable brands. Not all of these are intentional breaches of the rules, however – many are unaware that they are non-compliant.

In the latest government figures around National Minimum Wage non-compliance, 47% of those caught out wrongly deducted pay from workers’ wages, for expenses such as uniforms; 30% failed to pay workers for all the time they had worked, such as for overtime; and 19% paid the incorrect apprenticeship rate.

ICAEW addressed some of the common misconceptions around the National Minimum Wage in a recent webinar. This is freely available to view, along with a number of frequently asked questions that were addressed by ICAEW’s Tax Faculty.

Kate Upcraft of Kate Upcraft Consultancy explained some of the common misconceptions that organisations are making around the NMW.

It is not tax legislation

BEIS looks after NMW legislation, while HMRC looks after its enforcement. Because it’s not covered by the Taxes Management Act, however, there is no authority for a flexible, behaviour-based approach to enforcement and penalties. As a result, the rules are applied much more rigidly – though this has been relaxed slightly in recent years.

NMW applies to all worker types

The National Minimum Wage is not about low-paid workers – it applies to pretty much everyone in the organisation, with some exceptions (covered in the webinar).

Upcraft said: “If the most senior person in the organisation said for their final salary: ‘Can I please sacrifice all pay? I don’t want to be paid. I’ll just sacrifice everything into my pension,’ that wouldn’t be acceptable because they have to be paid National Minimum Wage for the hours that are worked. Sometimes this escapes people’s understanding … everybody is bound by the legislation.”

It covers more than just salary

“It’s even very complicated to determine what pay elements count towards the NMW. For example, premium payments, such as unsocial hours payments, have to be ignored and the definition of bonuses is tightly drawn, so it must be a bonus, not an allowance,” said Upcraft. “They’re very broad descriptions, so fitting your pay element structure and setting parameters as to whether a pay element is in or out is obviously key.”

The next phase of increases will have a significant impact

We will see further increases to NMW in 22/23 and it will bring a number of challenges for organisations, said Upcraft. “Particularly around salary sacrifice … we will have another cohort of people who cannot participate in salary sacrifice because it will drop them below National Minimum Wage, which is particularly problematic next April because a lot more employers will want to use salary sacrifice to mitigate the rise in employer national insurance in April.”

For full details on how to apply the National Minimum Wage, the misconceptions and challenges, watch the webinar, view the slides and Q&As.

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