HOT TOPIC
Ensuring continued compliance: national minimum wage and holiday pay HM Revenue and Customs’ (HMRC’s) continued enforcement of the national minimum wage (NMW) and the new legislation on holiday pay mean employers must prioritise these issues in their compliance procedures. Charlie Barnes, director and head of employment legal services, RSM UK , discusses the key actions you should be taking to mitigate the risks, which should be considered at all times
Key compliance areas of focus are listed below.
tips paid to employees don’t count towards NMW and therefore shouldn’t be used to establish whether NMW compliance is achieved. Commission, on the other hand, can be used. Time and attendance records When calculating NMW pay for a particular pay period, employers must hold the correct records of working time to ensure the worker’s pay meets NMW for all the time that’s actually spent working. For example, working time for NMW purposes includes: ● time spent travelling between sites ● mandatory training ● changing time before a shift. Implementing a robust system to record working time, and ensuring all workers and managers know how to use the system is the best way to ensure compliance. These records should detail start and finish times, while also documenting any breaks taken by employees. Deductions from pay There are several rules concerning which deductions will reduce pay for NMW purposes. Of those, salary sacrifice is the most common to cause an underpayment, and many employers get caught out. Salary sacrifice schemes should be set up to ensure checks are made meaning that workers can opt into the scheme so long as their post-sacrifice pay meets the NMW. It’s also important to ensure that the impact of all schemes the worker is opted in to are taken into account.
Worker categorisation There are four types of worker categorisation: ● salaried ● time ● output ● unmeasured.
NMW When it comes to ensuring compliance with NMW, a common misconception is that, provided employment contracts state employees will be paid the minimum hourly rate and rates are increased on 1 April each year, this is compliant. However, NMW compliance isn’t something that should only be considered when there’s a rate increase, and employers should have systems and controls in place to monitor NMW all year round due to its complexity. The most common breaches of NMW are often misinterpretations of the legislation and / or HMRC guidance. Although employers may think a minor mistake isn’t an issue, HMRC takes a hard line with enforcement, and can punish breaches which have resulted in an underpayment of NMW. HMRC can currently: ● order repayment of any NMW underpayments going back six years ● impose fines of up to 200% of the total underpayment, up to a maximum of £20,000 per worker ● refer employers to the Department for Business and Trade to be ‘named and shamed’ if the total underpayment exceeds £500.
Each worker’s categorisation must be known before completing the calculation of NMW because different rules apply to the calculation of working time. For example, where a worker is categorised as salaried, employers can average pay for an annual number of hours across the year. This means there can be pay reference periods where their pay might be less than NMW, but so long as it is at least NMW over the course of the year, there’s no breach. However, if a worker is categorised as undertaking time or unmeasured work, they must be paid NMW for the actual number of hours worked in each pay period. The correct categorisation of workers requires a review of employment contracts to establish whether the strict conditions set out in the legislation are met. Being confident that the categorisation of your workforce is correct is key to achieving NMW compliance. Pay elements Understanding which pay elements make up NMW pay and how they can affect the calculations is imperative. For example,
| Professional in Payroll, Pensions and Reward | May 2024 | Issue 100 62
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