Businesses have less than six weeks to make sure they don’t fall foul of NMW increase
Over 500 businesses have been named by HMRC for failing to pay the minimum wage to their employees. RSM UK warns employers they have less than six weeks to prepare for the next increase in National Minimum Wage (NMW), or they risk being named and shamed, and being hit with significant financial penalties.
For those businesses on HMRC’s latest naming and shaming list, the most common causes for underpayments were deductions from pay, working time and apprentices.
From 1 April 2024, the NMW rate increases from £10.42 to £11.44 for those aged 21 and over, with those aged between 18-20 seeing an even bigger increase of 14.8% to £8.60.
Charlie Barnes, director and head of employment legal services at RSM UK, said: ‘The clock is ticking for employers to prepare for the steep increase in national minimum wage on 1 April. HMRC’s latest naming and shaming list should come as a warning that it takes any breaches extremely seriously. The repercussions of non-compliance are severe; businesses could face repayment of underpayments going back six years, hefty financial penalties of up to 200% of underpayments, plus reputational damage, so it’s not an area that should be taken lightly.
‘The increase, while a positive for employees, will place additional pressure on businesses who are already feeling the squeeze. While industries such as leisure and hospitality, retail and manufacturing are typically hit by NMW increases, other sectors such as professional and financial services may also get dragged into the NMW compliance net for the first time. These employers will need to have a firm grip on how they plan to absorb these costs and what their compliance processes must be.’
Factors to consider ahead of the NMW increase:
- Ensure pay increases are budgeted into forecasts/balance sheets
- Consider alternatives to cover the increased costs, such as reviewing bonus schemes and commission premiums, benefit arrangements, or even reducing hours of work
- Review contracts to ensure employees are being correctly categorised for NMW compliance purposes (salaried, time, unmeasured and piece rate)
- Understand what amounts to working time so it is captured accurately and paid for
- Review arrangements for apprentices to ensure the correct NMW rate applies at the relevant time
- Review deductions and salary sacrifice arrangements to ensure there are processes in place to capture any risk of an NMW underpayment.
Charlie Barnes concluded: ‘Employers increasing pay to bring workers in line with the NMW rate may also find it difficult to offer similar percentage increases to pay throughout their entire workforce, meaning reward teams will need to consider their strategy to incentivise workers and retain staff.’