A different type of campaign
The latest campaign from HMRC has a different focus to its predecessors. It is aimed at employers who have not complied with national minimum wage (NMW) requirements rather than at tax avoiders.
As a reminder, this year’s rates of NMW are:
| From 1 October
|21 and over
|18 to 20
|16 or 17
|Apprentices under 19 or in
Since May, the penalties for non-compliance have increased substantially and are now charged according to the number of people employed. For each employee, the penalty is 100% of the underpayment up to a maximum of £20,000. Arrears are calculated according to a formula that uses the current rate of NMW.
For example, for ten weeks during June to August 2015, an employee was incorrectly paid the apprentice rate of £2.73 for 35 hours of work a week, rather than £6.50 which is the rate for people aged 21 and over. The weekly underpayment is £131.95, which is then uprated by 6.70/6.50 (the current correct rate divided by the rate that should have been paid at the time). The total arrears are therefore £1,360.10, which is also the amount of penalty. In addition, employers could find themselves publicly ‘named and shamed’ which would not be good for business if it were picked up by the local press.
Employers can avoid penalties and adverse publicity by making use of the NMW campaign, although of course it will still be necessary to pay any arrears.
There are several areas where it is easy for employers to make mistakes:
Should be paid the apprentice rate even if they are young and inexperienced. There is no reduction for any in-house training. If an apprentice is 19 or over, the apprentice rate only applies for the first year. Where an apprentice initially starts work on a normal contract of employment before starting an apprenticeship, the appropriate age-related rate should be paid for that period. Being trained in-house does not count as an apprenticeship unless there is an actual contract of apprenticeship or a government training arrangement.
For items required for work, such as uniforms, are taken into account when calculating the NMW. Therefore, pay after such deductions should amount to the NMW. However, voluntary deductions, such as for meals, can be ignored.
Cannot be included in the new NMW calculation even though they are taxable.
Required by the employer counts as working time for NMW purposes. The time spent travelling to attend training also counts if it is between the workplace and the training. It doesn’t matter if the training is outside normal working hours.
The campaign does not have a fixed deadline, but given the generous terms offered, it would be wise to make use of it as soon as possible. HMRC can be expected to ramp up their NMW enforcement once the campaign ends, typically targeting low paying sectors such as hair and beauty salons. Even if you are currently paying the correct rates of NMW, you need to look back for six years to be safe.
If you think you have underpaid employees, the first step is to notify HMRC. This signals your compliance commitment and will forestall any investigation being started. Within two months of notification, it will be necessary to check back for six years and disclose the results to HMRC. This is necessary even if no errors or underpayments are identified. Finally, any arrears should be paid to employees, with tax and NIC underpayments made good through PAYE.
Please get in touch and we will guide you through the process.
020 7376 9333
– National minimum wage (NMW) rises
– Changes to the minimum wage
– National living wage: tougher penalties come into force