HMRC steps up scope of National Minimum Wage Investigations
Don’t get caught out!
A strict penalty regime and negative publicity can be the unwelcome outcome of mistakes involving payment of the National Minimum Wage (NMW). Ask Rob Ennis, our Employment Tax Director, for a free consultation to assess the level of risk faced by your business.
For several years now, HMRC’s National Minimum Wage Enforcement Team has been tackling employers who flout NMW rules by deliberately paying their employees below the legally required hourly rate.
However, successful HMRC investigations have also targeted employers who have good intentions, but have been caught out by a technicality or a mistake. Examples include cases involving:
Employers who pay an annual salary based on 52 weeks of NMW level pay. This method of establishing pay levels may seem reasonable. However, it often fails to take into account the extra one or two pay days within a calendar year (for pay purposes there can be more than 52 weeks in a calendar year).
If HMRC establish that an underpayment has occurred, a “time based” approach, based on the employee’s regular pay period can be applied. The retrospective application of this approach can result in significant arrears and penalties.
Employees who pay for accommodation provided by their employer. HMRC may challenge arrangements through which employees pay rent to their employer in excess of the allowable Accommodation Offset (currently £44.80 per week). This can apply even where the provision of the accommodation is not connected to the employee’s job and has been sourced independently of the employment relationship.
Employers who make compulsory deductions from earnings for items such as uniforms, transport to work etc. HMRC are likely to challenge arrangements which allow earnings to be reduced below NMW levels through the application of mandatory deductions.
The introduction of the National Living Wage in April 2016 increased the minimum level of earnings for workers aged 25 and over to £7.50 per hour. For workers aged 21 and over, the minimum hourly rate is £7.05. These provisions protect the rights of employees and contribute to a fairer society, but don’t let your business fall foul of the system inadvertently.
A costly mistake
In the event of a successful investigation employers are required to pay arrears of NMW at current rates to existing and former employees. An additional penalty of 200% of the amount underpaid also applies.
On top of this there is the real prospect of reputational damage because of HMRC’s naming and shaming policy.
How we can help
HMRC has announced that the budget for its NMW Enforcement Team is to increase by £5.3m during the 2017/2018 tax year, meaning that more reviews and enquiries are likely to take place.
To ensure all our clients are complying fully with HMRC’s interpretation of the law, and so avoid a demand for payment or naming and shaming, we are offering a free consultation to assess the level of risk, if any, faced by your organisation.
If you would like to arrange a free initial meeting to discuss the NMW, or any other employment taxes related matter, please contact Rob Ennis.