HMRC recently published its top ten mistakes employers make when paying the national minimum wage, and what it shows is it is all too easy to slip up. Unscrupulous employers intentionally under paying staff are really not the problem. Here is our take on the top ten and what can be done to avoid mistakes:-
1. Education, education, education - the first mistake is simply down to not applying the correct rate of pay by failing to keep abreast of the annual increase. This year the increases, which take effect from 1 April, are as follows:-
- 25 year old and over rate will increase from £7.83 per hour to £8.21 per hour
- 21 to 24 year old rate will increase from £7.38 per hour to £7.70 per hour
- 18 to 20 year old rate will increase from £5.90 per hour to £6.15 per hour
- 16 to 17 year old rate will increase from £4.20 per hour to £4.35 per hour
- Apprentice rate will increase from £3.70 per hour to £3.90 per hour
2. Oversight - failing to keep track of when an employee moves from one band to another is the second mistake, with employers missing the birthdays (18, 21 and 25) that result in an increase in the hourly rate that requires to be paid. Even the most basic IT system provides for a diary system where reminders can be set to ensure errors are avoided.
3. Apprentices part 1 - not as straightforward as it might look from the table of increases set out above and this takes up two spaces in the top ten. Number three is paying the apprentice rate to someone who is not actually an apprentice. For national minimum wage purposes apprentices are either those employed on certain apprenticeship schemes or workers engaged under a contract of apprenticeship. All apprenticeships must incorporate structured training for the purpose of equipping the apprentice with either a skill, a profession or a trade.
4. Apprentices part 2 - number four is paying the rate to someone who is 19 or over and who is no longer in the first year of an apprenticeship. Apprentices who are 19 or over and who have completed the first year of their apprenticeship are entitled to the correct minimum wage for their age. As with oversight above, it all comes down to finding a system to keep track of ages and length of service.
5. Deduction from wages part 1 - number five on the list is making the employee pay for items or expenses connected to the job which has the overall effect of bringing the hourly rate below the minimum wage. If items such as safety clothing or uniform are required for a job, this cannot be offset against the minimum wage. What is more, if the worker spends money on clothes, uniform or similar and the employer reimburses the worker, the reimbursement does not count as minimum wage pay. Because of this, the most straightforward way to deal with this type of scenario for workers at or near the minimum wage is for the employer to supply what is required.
6. Deduction from wages part 2 - deductions that are deemed to be for the employers "own use or benefit" are number 6 on the list. These are deductions for things like meals or transport that the employer has provided. Whether the employer makes a profit or loss when providing this type of service, and whether the employee has the choice of buying the goods or services or not is irrelevant. The amount of the deduction made by the employer is seen as being a gain that is for their own use - even if that so called "gain" is simply to reduce any loss arising from the provision of the goods or services.
7. Living accommodation - many employers are surprised by how low the offset rate for living accommodation is as it may only be a small percentage of what the market rate for renting a property actually is. As with the hourly rate, the accommodation rate can change annually and is currently sitting at £49 per week, irrespective of the size and condition of the accommodation being provided. If an employer deducts more than that amount the effect is to reduce the hourly rate of pay.
8. Working time part 1- mistake number 8 is wrongly calculating the number of hours worked, for example, by not paying for time spent for certain travelling, training or downtime at the employer's disposal. This is a genuinely complicated area of the law with much time having been spent on the issue by the courts, most recently by the Court of Appeal in Royal Mencap Society v Tomlison-Blake; Shannon v Rampersad (t/a Clifton Residential Home) . In that case it was decided that care workers did not require to be paid for the whole of a shift when they were expected to be asleep unless called upon, but each case will turn on its own facts. This case is in the process of being appealed to the Supreme Court.
9. Working time part 2 - number 9 on the list can arise where workers are required to complete additional duties such as clearing a security check after their shift has finished. This type of activity, even if not the core focus of the workers' duties, still counts as working time and must be paid at the appropriate wage rate.
10. Including elements of pay that don't count towards minimum wage - bonuses and incentive pay, such as performance related pay, can count towards the minimum wage but overtime and shift premia do not. A common area of confusion is tips which do not count towards minimum wage pay regardless of whether they are paid through payroll or given directly to workers by customers. This is another area where an employer needs to educate themselves as to what can and cannot be included when calculating minimum wage.
Further guidance on this topic can be found at Calculating the minimum wage.