The risks around national minimum wage compliance for businesses
From 1st April 2023, national living wage and national minimum wage (NMW) rates will be increasing, with the national living wage rising by 9.7% to £10.42 per hour. HMRC is actively enquiring into compliance with these rules, especially with the easing of the pandemic. Political pressure is likely to see this issue remain topical, and a key area of HMRC focus.
There is often a misconception that compliance with the NMW regulations is as simple as paying the correct rate per hour. A further misconception is that employers that pay above NMW do not need to concern themselves with the details of compliance with the NMW regulations as they are ‘safe’ due to the level of pay. These are misconceptions that expose employers to risk as there are a number of pitfalls that can catch out even the most conscientious employers and those who set out to pay their employees more than the legal minimums.
Some of the common pitfalls that can catch employers out include:
- Identifying worker types and understanding the impact that this has on the NMW calculation. Even if annual pay is at or above NMW, breaches can sometimes take place in individual pay periods depending on employee working patterns.
- The definition of working time and capturing and paying all working time at the appropriate time
- Deductions from pay can cause NMW breaches, even where these are requested by an employee.
- Salary sacrifice can result in employees falling below NMW unless strong controls are in place to prevent this
- Uniform policy can create risks of breaching the NMW regulations
HMRC NMW investigations are often kicked off when HMRC receive a complaint from an employee, which they are duty bound to investigate. With the widely acknowledged pressure on the cost of living, and political prominence of NMW issues, employees will more closely scrutinise their pay and working time, and this could lead to an increase in worker complaints to HMRC. HMRC also launch targeted investigations. The retail, hospitality and leisure sectors are particularly at risk of receiving a HMRC enquiry.
With penalties of up to 200% for any underpayments identified and reputational damage due to being named and shamed, there are significant costs to employers of breaching the NMW regulations. Although. there have not been any recent cases of HMRC naming and shaming, we expect a new list to be published soon. One piece of good news, however, is that if you identify and self-correct any errors prior to an HMRC review being launched, you are likely to avoid penalties and being named.
Your business may feel confident about being compliant with the NMW regulations, but it is important that you are able to prove this to HMRC. The onus is on the employer to prove compliance and having a robust time and attendance system and strong payroll processes and controls are key to this.
How can Evelyn Partners help you manage these risks?
- We can carry out a risk review for you and highlight where you can improve your processes and policies and if necessary, take corrective action prior to an HMRC review.
- Advise you on your pay, benefits, and other contractual arrangements with employees to ensure that you are compliant with the NMW regulations and best practice to minimise risk and administration requirements.
- We can support you with responding to HMRC queries and investigations.
Approval code: NTAJ14012307
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
Prevailing tax rates and reliefs depend on your individual circumstances and are subject to change. Clients should always seek appropriate tax advice before making decisions.