COMPLIANCE
N MW is the minimum hourly rate workers are entitled to be paid under UK employment law. Since April 2023, rates have increased to £10.42/ hour for those aged 23 and over. It’s mandatory for every type of business with workers to adhere to the NMW rules, no matter their size or the magnitude of their workforce. Given failure to correctly apply the complex NMW rules can result in underpaid workers, significant penalties and public ‘naming and shaming’, compliance with NMW rules should be a top priority for organisations paying workers such as employees, casual or irregular workers. “ The importance of managing the governance of national minimum wage is often underappreciated ” In practice, there’s little formality when it comes to how NMW compliance is governed within an organisation, and this can fall between human resources (HR), tax, payroll and operations (e.g., site / shift managers). However, without the appropriate level of training or upskilling, NMW governance can run the risk of becoming fragmented and having too much devolved responsibility. This means it’s crucial to educate all relevant stakeholders involved in the end-to-end process. Proper NMW governance isn’t just about signposting that environmental, social, and governance (ESG) goals have been met. Correct NMW compliance allows employers to ensure the financial well-being of their workers by paying them fairly, something which will be appreciated by workers now more than ever, given the rising cost of living. Compliance with NMW regulations is more than just ensuring all employees above the age of 22 receive £10.42 per hour. There are several areas which can present businesses with a high risk of non- compliance. As already alluded to, the penalties of non-compliance can be severe, with fines of up to 200% of the amount underpaid in the previous six years, as well as public naming and shaming. To avoid these penalties, it’s
important businesses are aware of the areas which can often be the most problematic when it comes to NMW compliance. How to manage NMW compliance The role of HR HR departments are typically charged with recruiting and training workers, as well as handling the workers’ remuneration packages. HR, therefore, has a vital role to play in ensuring all worker information is recorded correctly and communicated to payroll. In addition to this, HR should ensure employees receive timely and accurate internal communications about the expectations on them when it comes to overtime, time off in lieu (TOIL), any deductions (and any deemed deductions) and other pay governance policy matters. HR should roll out accurate and informative (paid) training, which is completed by all employees, so they’re aware of what is and isn’t expected of them. Another key issue for HR to be aware of is the employment status of all workers affiliated with the business. NMW regulations don’t apply to workers engaging with the business on a genuinely, independently self-employed basis. As such, HR should be confident in the employment status of all self-employed contracted workers and should receive professional advice on the matter if they have any uncertainties. If this is handled incorrectly, there’s a risk employees will be misclassified as self- employed workers, and the business won’t consider them within the scope of NMW. The role of payroll The payroll team is ultimately in charge of ensuring payroll instructions are processed correctly and on time. This involves checking all employee details are up to date, salary details are entered correctly and timesheets are accurately completed / uploaded. To obtain higher assurance of NMW compliance, it would be beneficial to use payroll software which allows employers to flag any potential NMW compliance issues before the payroll is run. As well as the above, it’s vital the payroll team keeps accurate and up to date records of all payments made to employees, so that in the event of an HM Revenue and Customs (HMRC) NMW enquiry, the
business is prepared to present evidence of its compliance. In addition to this, becoming an accredited living wage employer is something which can be beneficial to businesses when considering how they can prove they’re paying their workers fairly. The role of tax Although NMW is not strictly a tax, aspects of employment tax should be taken into account when considering issues of NMW compliance. It’s mandatory that the correct income tax and National Insurance contributions are paid to HMRC for all salaries, pay and benefits received by employees. Tax departments can advise on the treatment of any pay elements which are reducing NMW pay too. The role of shift managers As previously mentioned, it’s vital to record all time worked by every employee, to ensure they’re paid at or above NMW for each hour worked. As such, it’s important that shift managers and those responsible for managing employees ensure timesheets are completed correctly and submitted on time, and that any overtime worked is correctly recorded. The role of the chief executive officer / chief financial officer and higher management Every organisation varies. It’s important to recognise that, to ensure compliance with NMW regulations, evidenced formal governance should be set out and this should be directed from the top. Ultimately, should there be any non-compliance, naming and shaming or financial penalties, this can severely damage a business’ health. It’s therefore vital for those in charge to ensure this area is secured within a business and not left to teams in isolation. Conclusion The importance of managing the governance of NMW is often underappreciated. Although there’ll be many businesses out there who believe this area is effectively managed, it’s important to ensure those who have responsibility act correctly and are sufficiently supported. Every team involved will no doubt bring different value to this area and, in a world where the environmental, social and governance (ESG) agenda is climbing higher and higher, it’s important not to lose sight of this. n
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| Professional in Payroll, Pensions and Reward |
Issue 92 | July - August 2023
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