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Travel, Tourism & Hospitality Community

National Minimum Wage – Top Tips in the Tourism and Hospitality Sector

Author: Gary Henderson, Manager, National Minimum Wage, EY

Published: 13 Nov 2023

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Being found in breach of the Government’s National Minimum Wage (NMW) laws can be a financially and reputationally damaging time for any business.

HMRC’s NMW enforcement teams will levy hefty penalties and publish the details of employers they find to have underpaid workers. The irony here is that, by HMRC’s own admission, the majority of NMW breaches are inadvertent. Most employers don’t set out to pay their workers less than the legal minimum.

However, the technical minefield of the National Minimum Wage legislation – added to the vast array of interpretations as the way we work evolves – means it’s probably more difficult now than at any other time for an employer to consistently get things right in this area.

This difficulty becomes more complex in sectors like travel and tourism hospitality, where employers are likely to experience a high turnover of staff and many jobs are paid at or near NMW.

It’s also a sector that lends itself to a need for flexibility in its working population, in terms of hours, shifts and locations.

These variables can all add NMW compliance risks.

‘How can things go so wrong with the National Minimum Wage or the National Living Wage’ you might ask. ‘It’s just an hourly rate’. If only it was this simple. NMW is a calculation made up of several factors. The foundation to that calculation is around what ‘type’ of work the individual is doing. From there an employer must establish the relevant NMW eligible pay and set that against the time classed as ‘working’ for NMW calculation purposes. That process should be implemented in each pay period to ensure compliance.

The easiest way to ensure this is by having a specific NMW check in place for every pay period. Remember, this is more than just a rate.

The first thing an employer needs to do is ‘categorise’ its workforce. There are four worker ‘types’ for NMW purposes:

  • Salaried worker paid an annual salary, in equal instalments for a basic number of annual hours (as outlined in their contract)
  • Time worker paid an hourly rate for each hour they do in a period
  • Output worker paid based on the number of items they produce
  • Unmeasured a catch-all for where the worker doesn’t fit into the first three types

Why does this matter?

Let’s say a hospitality employer has what they consider as ‘salaried’ management staff. However, some of them receive commission. Those who do become ‘unmeasured’ for NMW purposes.

For the ‘unmeasured’ staff – any overtime rates, salary premiums or unsocial hours premiums are included in NMW calculations.

For the remaining ‘salaried’ staff – they don’t.

Two workers, doing the same job for the same pay on the surface have completely different NMW pay calculations based on the worker classifications.

Once an employer has categorised its workforce, it then needs to tackle the two key elements of the calculation – pay and time, which is not straightforward.

What counts for NMW pay changes based on worker type. For example, where a worker is ‘salaried’, only their salary, any performance related bonuses and any payments for additional time worked at the worker’s basic rate count towards the calculation.

Salary premiums, overtime rates and allowances do not count.

However, if the same individual is an ‘unmeasured’ worker – those salary premiums and overtime rates would count.

Then, the employer needs to consider any deductions or payments made by the worker. Does it offer any salary sacrifice schemes? These will always reduce NMW pay.

What about the provision of uniforms or equipment? Does the employer take deductions for breakages or till shortages? These can all negatively affect NMW calculations.

For example – even where there is no specific uniform, even having a prescribed dress code can cause NMW underpayments. In many cases, HMRC have enforced where an employer has required the worker to wear white shirts, black shoes and black trousers. Even where the worker buys this from a third party – like a high street shop – the amount of the expense incurred will reduce NMW pay.

Are deductions made for travel or goods as part of work – even where the worker receives beneficial rates? Again, all are likely to reduce NMW pay.

Having in place a robust pay element review and knowing what counts as pay and what reduces pay in an NMW calculation is vital.

The next consideration is working time.

Wherever there is a requirement for a worker to be somewhere, or to be doing something, they’re likely working for NMW purposes.

That means any short periods before and after a worker’s shift where they are signing in, waiting for work, changing into uniform or maybe called in early to wait for say a brewery delivery, working time includes any activity that makes up a requirement of the working day.

In addition, any mandatory training time – whether on site or at home – and any travel time associated with the working day also counts.

If a worker is regularly travelling as part of their job – for example, where a travel agent is required to visit locations and assess the service of a hotel, care should be taken over what an employer considers to be part of their ‘working time’.

If the individual is ‘salaried’, it is not sufficient to follow the position outlined in the worker’s contract, which requires the individual to work additional hours as and when ‘without pay’. Where someone works over and above their basic contractual salaried hours for no additional pay, an ‘excess hours’ calculation is required by HMRC.

This calculation begins from the moment the worker achieves their basic annual hours. In practice, from that point the employer must pay at least NMW for both basic contracted hours as well as any hours actually worked in the period. In this scenario, some workers on upwards of £40,000 per annum are being ‘underpaid’ NMW.

It’s an employer’s responsibility to pay the relevant NMW rates to its staff and to be able to show that they’ve done so. The only foolproof way of doing that is by keeping robust records for all workers concerning time worked and pay.

HMRCs current enforcement activity leans heavily on this requirement around record keeping. When the author worked in the NMW enforcement team and carried out compliance checks, the key question I would ask around records was:

‘Are you confident that you would be able to show me the actual working hours and pay for any worker, in any pay period, for the last six years?’

If an employer’s answer to that question is no, then it could be time to review their NMW compliance processes.

*The views expressed are the author's and not ICAEW's.


Gary Henderson is a Manager in EYs National Minimum Wage team. He joined in 2022 after spending nine years in HMRCs NMW Enforcement department.