In early 2014, the Government has put into a place a strong enforcement on Employers to pay the National Minimum Wage (NMW) to their Workers. The consequences for those who do not pay could be dire. Not only do Employers face paying the arrears back to each Worker affected, they could also pay up to 100% of the underpayment as a penalty to the Secretary of State plus up to a maximum of £20,000. This £20,000 could soon be applied to each Worker affected.
If that wasn’t bad enough, any Employer who receives a notice of underpayment will also be referred by the HMRC to the Department for Business, Industry and Skills (BIS) and unless there are very exceptional circumstances, the Employer will be named and shamed in a BIS press release.
What is the National Minimum Wage?
The NMW is based on an hourly rate and is a legal entitlement that almost all Workers have. No Employer is exempt from paying it. The NMW is reviewed and usually implemented from 1st October each year. From 1st October 2014 it will be:
| Adult Rate | £6.50 (an increase of 3% from £6.31 |
| 18-20 years old rate | £5.13 (an increase of 2% from £5.03 |
| 16-17 years old rate | £3.79 (an increase of 2% from £3.72 |
| Apprentice rate (under 19 years old) | £2.73 (an increase of 2% from £2.68) |
Who isn’t paid the NMW?
People exempt from the NMW are those under school leaving age, or those in Higher of Further Education on a Work Placement of under 1 year, the Self-Employed, Company Directors, Members of the Armed Forces, Prisoners, Au Pairs and members of the Employer’s family who live in the home of the Employer.
How to calculate the NMW
The hourly rates above are calculated by using the gross pay of a Worker earned over a month. This will include any overtime, bonus, commission plus and accommodation that the Employer supplies to the Worker up to a maximum of £34.37 per week.
Benefits such as a Car, Pension or Medical Insurance are not included in the calculation.
Salary Sacrifice
Employers who offer salary sacrifice schemes such as Pension, Childcare Vouchers or Cycle to Work must ensure that the salary sacrificed does not bring the Workers hourly rate under the NMW. This is particular important if there is a change in the year which increases any salary sacrifice made.
How can Employers get it right?
Once the NMW rates are announced each year, it is prudent to check that each Worker is paid the appropriate hourly rate and increase it if necessary. This should be done prior to the October payroll deadline of the relevant year. If an Employer has any Agency Workers it is also vital to inform the Agencies of any comparator workers who have increased their salary due to the NMW.
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