PAYROLL INSIGHT
NMW/NLW compliance matters
Tim Bridgett, employment taxes senior manager at PSTAX, discusses some of the major risk areas identified
W e have noticed a significant in respect of the national minimum wage (NMW) and the national living wage (NLW) as well as receiving an increasing number of queries from our clients. Background As discussed in our previous article on this subject (see Issue 38, March 2018), for NMW (and NLW) purposes employers need to aggregate all the pay elements and allowances relating to actual hours worked in a particular pay period. Deductions from pay, either from gross pay or from net, can have significant impacts on minimum wage calculations. Great care must be taken to ensure deductions do not reduce the hourly pay levels to below the appropriate NMW/NLW level. Where underpayments of NMW/NLW are identified, employers may be required to repay arrears of the minimum wage to each worker identified, for up to six years. Additionally, penalties for breaking minimum wage law also apply and can be up to a maximum charge of £20,000 per worker. The Department for Business, Energy and Industrial Strategy also has the power to publicly name and shame employers that have been found by HMRC compliance teams to be non-compliant. Allowances and ‘sleep-in’ rates This will generally apply to employees working in the care sector, who are often paid overnight allowances for sleeping on work premises. These ‘sleep-in’ rates do count towards the NMW/NLW calculations. This area has been the subject of much discussion over the past few years, with several high-profile tribunal cases being heard. increase in compliance activity by HM Revenue & Customs (HMRC)
Annualised hours This applies where salaried workers will not be working for the full twelve months in a year, but their salary will be divided equally across the year. This will mostly apply to individuals working at schools. Although the hours worked by these employees are likely to fluctuate from week to week and month to month, under the NMW guidance employers should divide the annualised hours by twelve to identify the notional hours due for each month for their NMW calculations. It is essential that workers engaged to work on this basis have a contract that explicitly states what hours they are expected to work during the course of the year, or at least provides sufficient information in the contract to allow the annual hours to be calculated. HMRC’s National Minimum Wage Manual (https://bit.ly/2sCnLmM) (‘the NMW Manual’) gives an example where such wording is not sufficient: “Where a contract specifies a minimum number of hours to be worked, such as ‘at least 40 hours per week’, then it is not possible to ascertain the exact number of basic hours and the worker will not be performing salaried hours work.” Clearly, great care must be taken to ensure the wording of such contracts meet the requirements of the minimum wage regulations. Salary sacrifice Any deductions from an employee’s pay can have a detrimental effect on NMW calculations and this is particularly relevant for employers that allow employees to participate in salary sacrifice schemes. HMRC guidance on salary sacrifice schemes states that: “A salary sacrifice arrangement can’t reduce an employee’s cash earnings below the
HMRC has acknowledged that its official guidance in this area has been particularly misleading. HMRC’s 2013-guidance had this to say about sleep-ins: “Time when a worker can sleep and is not working is not time for which you have to pay them the minimum wage.” ...ensure deductions do not reduce the hourly pay levels to below However, in the guidance published in April 2017, HMRC reversed its advice and the same section now states: “A worker, who is found to be working, even though they are asleep, is entitled to the minimum wage for the entire time they are at work.” In November 2017, HMRC introduced the social care compliance scheme to address these issues. The message was clear in that HMRC still expects all employers to pay their workers according to the law, including the NMW. However, it did also say that organisations that do register with this scheme may make disclosures of NMW/NLW underpayments and that HMRC will waive financial penalties faced by any employer found to have underpaid their workers for ‘sleep-in’ shifts, with the condition that those shifts must have taken place before 26 July 2017. The social care compliance scheme will end on 31 March 2019, by which time all employers must have shown that they have repaid their arrears relating to time spent sleeping. the appropriate NMW/NLW level
| Professional in Payroll, Pensions and Reward | July - August 2018 | Issue 42 20
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