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Beware National Minimum Wage pitfalls, businesses warned

Businesses with staff being paid at or near to the National Living Wage or National Minimum Wage are being urged to review their payroll compliance.

Employers that are found to have underpaid by more than £100 over a six year look-back period can be named and shamed by the Department for Business and Trade (DBT), which can have a damaging effect on their reputation and even lead to some companies being boycotted by customers or clients.

Tax and consulting advisory firm RSM says a large number of employers continue to be caught out by “technical compliance breaches”, which are typically unintentional and happen when employers may not have the necessary processes in place to track exact working hours or identify other risks associated with day to day working arrangements.

Speaking at a round table hosted with Liverpool Chamber, RSM partner David Hawley said:

“The National Minimum Wage is a complex area for many businesses, especially smaller firms, and we are seeing many come unstuck due to technical compliance breaches.

“The vast majority of companies do not intentionally ignore their responsibilities around the National Minimum Wage, but it is often the case that smaller firms are less well organised when it comes to process issues, such as staff clocking in and out, dress code requirements or understanding how long it takes someone to put on protective clothing.

“In the majority of cases, the discrepancies in pay can be very small. Despite this, and the highly technical nature of such a breach, it can still create highly damaging negative publicity and word of mouth for an employer that is found to be in breach.

“We urge businesses of all sizes to carefully review their National Minimum Wage calculations and undertake risk assessments to identify where possible breaches could arise.”

John Miller, director of Sure Steps Day Nursery in Liverpool, added:

“There are lots of pitfalls around the National Minimum Wage and investigations can be lengthy and time-consuming for business owners.

“There are examples of businesses in our industry whose staff had stated rates of pay, fixed hours and were paid monthly, meaning they might work slightly different hours in different months, but over the course of a year it averaged out. They were deemed in breach because their contract did not state that they were salaried.

“Where staff have children at a nursery, the nursery can deduct childcare fees directly from their pay, but this can mean their payslip looks much lower than it should be. The same applies for savings schemes or benefits such as cycle to work schemes. Again, HMRC might rule that business is technically in breach, so businesses need to be very careful.”

Paul Cherpeau, chief executive of Liverpool Chamber, said:

“The Liverpool City Region economy relies on a buoyant, aspirational SME sector. Question marks around staff pay or tax can undermine the confidence of business owners to move forward with their growth plans.

“No firm wants to think they’re going to get in trouble with HMRC while they’re trying to recruit or expand, so it’s vital that they understand the rules, verify all payroll submissions they make and insulate themselves from an accidental technical breach.”