National Minimum Wage (NMW): HMRC to launch new enforcement initiatives

HMRC’s Special Enforcement Team are implementing two new programmes to strengthen NMW compliance – here’s what you need to know

HMRC to strengthen NMW compliance

HMRC are launching two new projects to reinforce NMW compliance: the repeat visit programme and the employer support programme. These are at a relatively early stage and we are meeting with HMRC to confirm how they will operate – but they underline HMRC’s commitment to ensuring that employers comply with their obligation to pay employees at least NMW. This article shares our current understanding of HMRC’s new initiatives and steps employers should take in response.

What do we know about the repeat visit programme?

The repeat visit programme is aimed at employers that have already been subject to an NMW investigation and is essentially a follow up check of pay and record keeping ensuring that workers are paid at least NMW. 

Beginning in the first quarter of 2023/24, HMRC’s Special Enforcement Team will select businesses that have been the subject of previous NMW investigations and re-visit them to assess:

  • Their general NMW compliance (i.e. an assurance check of record keeping and workers’ pay); and
  • What remedial action they took in response to the previous review.
Our current understanding is that, in addition to reviewing the employer’s systems, processes and records, HMRC might interview individual workers as part of their enquiries.

Whilst the follow up check might appear to mirror a traditional review, HMRC have indicated that they will provide compliance support if any new issues are identified suggesting that penalties and naming might not be enforced in relation to any new issues (though this is not guaranteed). Penalties and naming are however more likely to apply if employers have failed to act on HMRC’s previous advice in relation to issues highlighted in past reviews and we expect that the discovery of ‘repeated’ errors will lead to robust enforcement action extending beyond penalties and public naming.

In that respect, a recent report from the Resolution Foundation has criticised what in its view is ‘lenient’ enforcement of NMW breaches and the Department for Business and Trade has highlighted an increase in the use of Labour Market Enforcement Undertakings (LMEU’s) / Orders (LMEO’s) by HMRC (i.e. orders from the Court directing the employer to comply which carry a risk of prosecution or imposing prohibitions and restrictions on the employer for continued non-compliance). This enforcement strategy could be used during HMRC’s repeat visits programme if arrears of pay are identified relating to risks that HMRC consider have not been addressed. Of course, it will all depend on the circumstances, but repeated breaches in respect of risks already identified is likely to be something taken very seriously. 

How will the employer support programme work?

The employer support programme is still in development. When launched – which is expected to happen in the second quarter of 2023/24 – it will involve an offer of advice and support to ‘large and complex’ employers. Participation will be by invitation and we have asked HMRC to clarify what constitutes ‘large and complex’.

Whilst involvement in the programme is voluntary, we understand that HMRC strongly recommend that invited employers participate. 

The programme is expected to include discussions of the business’s current and future NMW compliance, a walkthrough of the business’s pay and record keeping systems, and a review of selected payroll and other employer records.

If HMRC identify any historical issues, we understand that they will offer advice and encourage employers to identify, quantify and declare NMW arrears.

Whilst HMRC have indicated that they do not intend to take enforcement action which leads to naming or impose penalties, depending on the specific facts of any NMW violations, this cannot be guaranteed.

What should employers consider now?

Our current understanding is that these programmes will each involve 20-30 employers over the next 12 months. Participation might increase in subsequent years.

However, regardless of whether they are approached by HMRC’s Special Enforcement Team to participate in the initial launch of these new projects, all employers should ensure that they proactively assess and manage their NMW risk to ensure they comply with their legal obligations, protect their reputation as an employer of choice, and have a fully engaged and properly rewarded workforce.

KPMG’s Tax and Legal NMW team is actively engaging with HMRC to understand further details of how the new programmes will operate, and how employers could prepare for participation to ensure they comply with their NMW obligations. We will share relevant updates in due course.

In the meantime, please contact the authors or your usual contact in KPMG in the UK to talk through how HMRC’s new initiatives might affect your business. Our team of employment tax, legal and payroll experts can provide support on all aspects of NMW risk assessments, compliance, and remediation.