The Perils of Inaccurately Processing the National Minimum Wage

payroll bureau

Surely, the National Minimum Wage (NMW) has to be the simplest piece of payroll legislation to manage correctly. It’s currently set at £8.72 per hour so what could be more straightforward?

But it’s precisely this simplicity which has led thousands of businesses to fall foul of the regulations. The budget for the enforcement of the NMW regulations has been doubled since it’s inception, in 2017/18, HMRC took action against more than 1,000 businesses, identifying £24.4 million of pay arrears for workers and levying financial penalties of £17 million.

Blindly applying the NMW rate without considering the potential complications stemming from, for example, deductions of pay, tips, training time, travel time and costs, sleepover time, can easily lead a well-meaning employer to inadvertently break the law.

Processing payroll is a specialist task, best left to specialists, like Paycheck Plus, leaving you to run your business confident in the knowledge that you’re on the right side of the law.

National Minimum Wage

Set annually by the Government, NMW is based on recommendations from the Low Pay Commission.

Regardless of your position in the company you are entitled to the NMW once over school leaving age, however, there are a few exceptions where the NMW doesn’t apply, including:

  • Self-employed people running their own business
  • Company directors
  • Volunteers or voluntary workers
  • Family members of the employer living in the employer’s home.

The NMW rates are as follows:

Age Band April 2020 Rates
25 and over £8.72
21-24 £8.20
18-20 £6.45
Under 18 £4.55
Apprentice* £4.15

*  Apprentice rates apply to all apprentices under the age of 19 and over the age of 19 in their first year of their apprenticeship. It must be paid for all the time they spend working and all their time spent training. After this, the apprentice must be paid the normal NMW for their age.

National Living Wage

Introduced in April 2016, The National Living Wage (NLW) is what anyone aged 25 or over, and not in their first year of apprenticeship is to be paid. Employers are obliged by law to pay any employee who falls into this category a minimum of £8.72 per hour. Essentially the NLW is simply a renaming of the NMW, calculated on a proportion of the median level of earnings, it is not a true representation of the cost of living in the UK.

Prosecution for Non-payment

In 2016, a new enforcement team was introduced by HMRC to crack down on employers not paying the correct NMW. This team have the power to impose penalties, refer cases for criminal prosecution and naming and shaming offenders.

Employers who fail to pay can also be banned from being a company director for up to 15 years.

Considering the heavy penalties issued by HMRC for not complying, and the reputational damage caused by being named and shamed for not looking after your staff, it is within the interests of employers to make sure they are paying their staff correctly and fairly.

Paycheck Plus, Your Payroll Outsourcing Partner

Managing payroll is a complex and time-consuming operation. Keeping up to date with ever evolving legislative changes, ensuring payroll compliance and delivering employee wages accurately and on time takes its toll on a business’ senior resources. Our UK Payroll Company has been providing comprehensive payroll services tailored specifically to each of our client’s needs from our Manchester Payroll Bureau for over a decade. Our expert UK payroll providers handle all aspects of payroll management for our clients.

To ensure payroll accuracy or for more information on our payroll services simply request a callback now or call our Payroll Service Office in Manchester on +44 (0) 161 464 8720.

Paycheck Plus | Your Payroll. Our Passion.