Employers – are you paying the correct National Minimum Wage?

Increases to the National Minimum Wage (NMW) creates a potentially expensive area of risk for some employers. In the wake of the new minimum adult pay rate rise from £6.50 to £6.70, new Government legislation on NMW means employers risk an up to £20,000 fine for EACH worker they underpay.

According to research by The Department for Business, Innovation and Skills (BIS), who surveyed a 1,000 companies, many are ignorant of the new hourly NMW rates. And more worryingly perhaps, almost half were unaware it’s an offence not to pay the rate or falsify records.

If an employer isn’t paying the correct rate an employee can initiate formal grievance procedures and make an official complaint to HMRC who will investigate it.

The age related rates from 01/10/2015 are:

21 and over – £6.70

18 to 20 – £5.30

Under 18 – £3.87

Apprentice* – £3.30

*This rate applies to apprentices aged 16 to 18 and those aged 19 or over, in their first year of the apprenticeship. All other apprentices are entitled to the National Minimum Wage that relates to their age.

So while making yourself aware of the changes and how they can affect your business is crucial, so too is getting your accounts in order.

Here are a few things we recommend:

Review your payroll – It is imperative you review your employee hourly rates to make sure they will meet the NMW rates. Minimum wage rates are age-based, so the ages of your workers are an important factor, so your systems need to be able to take birthdays into account and update or adjust accordingly. Also be aware that the mandatory National Living Wage comes into effect from April 2016, set at £7.20 an hour for workers aged 25 and above.

Look at your contracts – Include a stipulation in your employee contracts they will be paid the NMW.

Use the support tools available to you – The Government operates a Pay and Work Rights Helpline on 0800 917 2368 and has lots of useful information and guidance online at www.gov.uk as well as an online calculator. The conciliation service ACAS has also developed online tools and guidance. But pick up the phone and talk to your accountant if you feel you’re struggling to cope and want some advice specific to your business.

Benefit from any offsets or exclusions

Some payments made to workers should not be included when the minimum wage is calculated. These include things like the employer paying for an employee’s travel to work. Considerations should also be given to salary sacrifice arrangements, which your accountant or adviser can discuss with you.

Finally there are a number of myths surrounding the NMW. Some untrue myths not to get caught out by include:

  • Staff who work longer hours than shown in their contract are not entitled to the NMW for the extra hours worked
  • Perks of the job such as staff discounts and free meals can be included in NMW calculations
  • Workers over pensionable age are not entitled to the NMW
  • The NMW is only payable to UK nationals.
  • Workers in a probationary period or subject to disciplinary proceedings do not need to be paid NMW

It’s a simple change, but mistakes can now be expensive for employers, so get it right or talk to your accountant and make sure you don’t risk a fine.

Our dedicated employer tax team can help you understand the rules and advise you on how to remain compliant. To discuss these issues in more detail, please contact [email protected] or call Helen on 01527 558539..