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As HMRC ramps up its efforts to tackle National Minimum Wage (NMW) noncompliance, ensuring that your business adheres to NMW regulations is crucial. Compliance can be more complex than it seems, and the consequences of getting it wrong can be significant.
HMRC is targeting SMEs
HMRC appears to be focusing on SMEs, particularly in regions such as Belfast, Liverpool, East Anglia, Watford, and the North East, with plans to expand to more areas in the future.
Key areas of NMW compliance to watch
While paying the correct NMW rate is essential, compliance extends beyond this. Here are some critical areas to monitor:
- Worker classification: Under NMW laws, workers fall into four categories – salaried, time-based, output-based, or unmeasured. The worker’s category determines how NMW is calculated.
- Excess hours for salaried staff: For salaried workers, you must account for any excess hours worked, such as arriving early, staying late, working through lunch, or business travel. These hours must be included in NMW calculations, and payments may need to be adjusted to stay compliant.
- Non-employees as workers: In some cases, individuals who aren’t classified as employees under PAYE may still qualify as workers under NMW rules. For example, paying volunteers beyond expenses or providing non-cash benefits could unintentionally make them workers under NMW regulations.
- Deductions from wages: After-tax deductions, such as those for benefits or savings schemes, can lead to noncompliance if they bring a worker’s pay below the NMW threshold. A recent tribunal case showed that even well-meaning schemes can result in NMW breaches.
- Accurate record-keeping: If a worker disputes their pay and you have not maintained accurate records, HMRC will typically side with the worker and base any arrears on the information they provide.
Consequences of noncompliance
HMRC’s enforcement process involves a three-stage approach, becoming progressively stricter if issues are not addressed. Continued noncompliance can result in penalties of up to 200% of arrears and public naming and shaming on the government’s website. This exposure can harm a business’s reputation, making recruitment, supplier relations, and growth more challenging.
Steps to ensure compliance
To avoid these risks, conduct regular reviews of your practices to ensure compliance. Assess potential areas of noncompliance, update policies, and ensure that employment contracts are aligned with NMW regulations. Clear communication with staff and managers is vital to address any concerns early.
Our payroll team is highly experienced in applying NMW rules. If you have any questions or need advice on specific situations, please don’t hesitate to get in touch – we’re here to help.
