Up again: avoiding common, and costly, minimum wage mistakes

Why should I read this?

The Government is increasing the National Living Wage (NLW) by 9.8% to £11.44 an hour, effective 1 April 2024. 

Also from April, NLW eligibility will be extended by reducing the age threshold to 21 years for the first time (currently, it is 23 years and above) and providing those affected with a 12.4% increase. 

These changes come on the back of further increases in minimum wage rates over recent years, increased funding for HMRC enforcement and growing scrutiny from investors and other stakeholders, reflecting the evolving ESG agenda. Environmental, social and governance (ESG) factors form part of an increased focus on employer sustainability, with workforce pay typically falling under the social aspects of ESG, including whether an employer complies with the NMW, if applicable.

Most employers believe that setting the current minimum wage rate is enough. Yet our experience is that many, inadvertently, are incorrectly applying the complex NMW rules. HMRC’s enforcement policy makes no distinction between deliberate and accidental breaches, with attendant reputational risks. Is your organisation compliant?

 

What should I do?

The stakes are high: failure to pay the appropriate rate, whatever the reason, can lead to PR damage (via the “naming scheme”); time and expense in responding to enforcement action; large financial penalties; back-pay to affected workers for up to six years; and, potentially negative attention from key stakeholders.

Employers with workers paid at or near the NLW, and those with workers affected by the lowering of the age threshold, should review payroll systems and workplace practices to ensure compliance. For example, identifying eligible workers entitled to the minimum wage and their correct rate, ensuring that all their working hours are identified, and risk assessing against common mistakes involving flexible benefits, salary sacrifice, workplace expenses and annualised hours, among other examples. 

How an employer responds to upcoming rate increases is also important, with some incorrectly assuming they can absorb the cost from other pay and benefits provision. 

It is vitally important that employers are proactive and seek to address any mistakes as soon as possible, certainly before a complaint is raised to HMRC, triggering formal investigation. There are also mitigation steps employers can take if problems arise.

Further detail is found in our short webinar recording, which provides information on upcoming changes and risk mitigation, and our Common national minimum wage pitfalls for employers update.

 

What else do I need to know about minimum wage changes?

As well as the above NLW changes, rates for younger workers, apprentices and the accommodation offset are also increasing.

Further rate rises may follow, reflecting a pending general election and at least two political parties (Labour and Lib Dems) exploring a higher NMW. Both parties’ proposals to reform employment status, would, if enacted, also widen the scope of workers qualifying for the NMW, particularly in the gig economy.

 

Eversheds Sutherland resources

Webinar - Changes ahead: checking your compliance with the minimum wage
Guide - Common national minimum wage pitfalls for employers