With HMRC intensifying its focus on National Minimum Wage (NMW) compliance, it's essential for businesses to ensure they are following the rules closely. Noncompliance can be more complex than it appears and the consequences of getting it wrong can be severe.
HMRC's Focus on SMEs
HMRC has turned its attention towards small and medium-sized enterprises (SMEs). Recent compliance checks have been reported in areas such as Belfast, Liverpool, East Anglia, Watford, and the North East, with plans to extend this initiative across other regions. For SMEs, this scrutiny means being more vigilant about NMW compliance.
Key Compliance Areas to Consider
While it's crucial to pay employees the correct NMW rates, there are additional aspects of compliance that businesses must be aware of to avoid falling foul of the regulations.
- Worker Classification: Under NMW rules, workers are categorised in four ways—salaried, time-based, output-based, or unmeasured. This classification determines how NMW should be calculated for each worker.
- Working Hours: For salaried employees, it's essential to monitor extra hours worked. NMW must cover all hours worked over a year, including excess hours like arriving early, staying late, working through lunch breaks, or logging in outside normal hours. Employers may need to adjust payments to stay compliant.
- Non-Employee Workers: Some individuals who aren't employees under PAYE may still count as workers under NMW laws. For example, paying volunteers beyond expenses or offering non-cash benefits may classify them as workers, triggering NMW obligations.
- Deductions Impacting NMW: Deductions for benefits or savings schemes can unintentionally lower a worker's pay below the NMW threshold. A recent tribunal case demonstrated that even well-intentioned schemes can lead to noncompliance if they reduce a worker's earnings below the legal minimum.
- Accurate Record-Keeping: In case of disputes, if an employee provides time records but you haven't kept accurate records, HMRC will likely side with the employee. Keeping complete and accurate records is critical to avoiding issues.
Consequences of Noncompliance
HMRC follows a three-stage enforcement process, escalating from initial soft measures to more severe penalties if noncompliance persists. Penalties can reach up to 200% of the wage arrears owed, and businesses could face public "naming and shaming" on the government website. This exposure can harm a company's reputation, making it harder to recruit staff, maintain supplier relationships, and grow the business.
Proactive Steps for Compliance
To mitigate these risks, businesses should carry out regular reviews to ensure compliance with NMW rules. This includes identifying potential areas of noncompliance, updating policies, and making sure employment contracts are in line with the regulations. Effective communication with staff and managers is also key to addressing any issues early on.
If you need guidance on navigating NMW compliance, our payroll team is here to help. Contact us for expert advice on your specific circumstances.
For more information, visit: ICAEW article on NMW compliance.