On 5 August 2021, the government released its most recent list of companies which have breached the requirement to pay employees at least the National Minimum Wage (NMW). In total, 191 companies were named including many household names, such as John Lewis, Pret and The Body Shop.
The requirement to pay NMW is well-established and is something that all companies will be well aware of. All employees are entitled to be paid at least a certain level of pay, depending on their age. The requirement to pay NMW applies to all employees as well as “workers” and therefore any reference to employee here should be read to include workers. The current NMW for anyone aged 23 or over is £8.91. This has been the rate in place since April 2021. Previously, the highest rate of NMW was only applicable to those aged 25 or over.
With such a well-established rule, it poses the question how such large companies have fallen foul of the rules. These breaches do not appear to have been an intentional ploy to pay employees less than they are legally entitled, and some of the named companies have apologised and confirmed that repayments had been made to employees. The government’s report notes that the most common reasons for the underpayments have been:
Pay deducted from wages, such as for uniforms and expenses;
Failure to pay correctly for all hours worked (including overtime); and
Payments made at the incorrect apprenticeship rate.
This highlights the need to have appropriate policies and processes in place to ensure that all employees are paid at least the minimum amount.
Certain deductions from employee’s wages are permitted, even where the employee is paid NMW or just over, so the net effect of this will be that the employee receives less than NMW. These permitted deductions include tax and national insurance deductions, recoupment of overpayments and, in certain situations (and subject to separate regulations) costs for accommodation. Deductions can also be made in circumstances where the employee’s conduct has caused losses.
However, the regulations governing the payment of NMW specifically exclude making deductions for “expenditure in connection with the employment”. This seems to be where many of the named companies have fallen short of the regulations. Expenditure in connection with employment will include things such as uniforms, tools or mandatory training. In each of these examples, it is likely that the employee will need these things to be able or permitted to do their role, therefore the regulations have made it clear that these costs cannot be deducted. These costs will therefore be an additional cost to employers.
Since April 2020, employers have been entitled to require employees to purchase such items, however the employer is required to reimburse the employee for any such expenditure.
Where an employee is paid NMW or just over, it is even more important to ensure that accurate records of hours worked are kept, to avoid falling foul of the NMW requirements. This includes all overtime or additional hours worked by the employee.
While there is no requirement to pay a higher rate for overtime (for example, time and a half), it is necessary to make sure that employees are paid at least £8.91 per hour worked (or such other rate as may be appropriate, depending on age).
Having employees “clock” in and out by recording when they start work and when they finish can give a clear indication of the hours worked and will ensure that a record can be checked for the purpose of appropriate payment.
Apprentices have their own rate of NMW to reflect the fact that while they are employees, they are also training. However, depending on the age of the apprentice and what stage they are in of their apprenticeship, that rate may change.
It is therefore important for all employers with apprentices to ensure that their age is closely monitored. A higher NMW applies where the apprentice is 19 or older. Many apprentices are younger and so their 19th birthday may fall at some point during their apprenticeship at which time the higher rate will apply.
A higher rate of NMW for apprentices also applies 12 months after the commencement of their employment. Therefore, apprentice’s start date should be clearly noted to ensure that any increase due is applied on time.
Where there is a breach of the requirement to pay NMW, employers may find themselves on the government’s list giving rise to negative publicity.
In addition to being “named and shamed”, the government may also impose fines on employers found to be in breach of the regulations, as well as being required to make up any shortfalls in payments. The 191 companies named in the recent government announcement have been required to repay £2.1 million to employees in respect of underpayments of NMW, plus an additional £3.2 million in fines to the government, as a punishment for breaching the regulations. Certainly an expensive mistake to make.
The 191 companies named are those who have been audited by HMRC. If employees, either individually or collectively with their colleagues, are concerned about their pay falling short of NMW, they are able to issue Employment Tribunal proceedings to recover the underpayment.
It can therefore be a very costly mistake to underpay employees and care should be taken to ensure that working practices provide appropriate protections to avoid wages slipping below the NMW limit.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.