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    The Department for Business and Trade, along with HMRC, has named 518 employers who failed to pay the correct wages, revealing that over 55,000 workers were affected by these underpayments, totalling £7.4 million. This highlights the ongoing challenges faced by various sectors, particularly hospitality and retail, which account for nearly half of the underpayments.

    Many of the employers included on the list will offer higher headline rates of pay but technicalities in the legislation mean that this isn’t the actual rate of pay HMRC officers apply when reviewing compliance.

    National Minimum Wage (NMW) compliance remains a complex area, often fraught with technical challenges, resulting in many employers inadvertently making errors due to the counterintuitive nature of some rules. The consequences of non-compliance are severe, with penalties set at 200 percent of the underpayment and significant reputational damage. Therefore, it is crucial for employers to proactively address potential risks and implement robust compliance measures.

    This article looks at what led to the NMW failures and what employers can learn from this to avoid finding themselves in the same situation.

    Caroline Laffey
    Caroline Laffey

    Partner, Employer Reward Services

    KPMG in the UK

    Reasons for underpayments

    HMRC have provided further information to explain the reasons for the underpayments. The main themes were:

    • Deductions from Wages: 34 percent of employers (178 cases) made incorrect deductions from workers' wages, which took their pay below the minimum wage. These deductions included costs for uniforms, meals, training, Christmas saving schemes and Salary Sacrifice;
    • Failure to Pay for All Working Time: 31 percent of employers (161 cases) failed to pay workers correctly for all their working time. This included unpaid work before or after shifts, rounding clock-in times, and unpaid travel time;
    • Incorrect Apprentice Rates: 22 percent of employers (114 cases) failed to pay the correct rate to apprentices. This often involved paying the apprentice rate to those who were no longer eligible; and
    • Failure to apply the NMW Rate changes: 18 percent of employers (92 cases) did not increase workers' pay following the annual increase in the minimum wage rates on 1 April or when the worker was entitled to an increase following their birthday, leading to underpayment.

    Other failures include failure to correctly apply the Accommodation Offset rules and incorrectly categorising a worker’s ‘Type of Work’, which effects how NMW should be calculated.

    Employers should reflect on these findings and assess whether the business may inadvertently be encountering any potential National Minimum Wage pitfalls.

    Record keeping

    In order to demonstrate compliance with NMW Regulations, employers must maintain clear records outlining hours worked and payments made to their workers. Workers and HMRC compliance officers have the right to request records and refusal to provide records when requested may lead to criminal sanctions for the employer.

    Focus on Salaried Workers

    Following a change in regulations in 2020, HMRC are increasingly focusing on salaried workers earning up to £35,000 per annum. NMW underpayments as a result of salaried excess hours are very likely to become one of the main themes in future reviews and this is likely to result in further penalties and naming. Employers should update their risk management processes to demonstrate compliance for this population, especially as many do not complete time records.

    For further information please contact:

    Our tax insights

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