The Department for Business and Trade has published a list of employers who failed to pay the National Minimum Wage (NMW). Key sectors include employment agencies, retail, manufacturing, hospitality, freight, and transport. More than 500 employers were named, ranging from well-known large businesses to private individuals. Underpayments totalled nearly £16m between 2013 and 2021 and impacted over 172,000 workers. NMW arrears per employer varied from £515 to £5.1m.
As this suggests, it can be easy to get NMW wrong. In many cases, underpayments may not be deliberate. Nevertheless, the consequences of non-compliance can be significant, with a default penalty set at 200% of the pay arrears, and the reputational impact of having underpaid employees – regardless of the reason. It’s therefore important for employers to get ahead of their risk and implement measures to minimise the risk of paying less than the NMW.
This article looks at what errors led to the NMW breaches identified in the latest list, and what employers can learn from this in order to avoid contravening the NMW rules.
National Minimum Wage underpayments: common pitfalls
NMW compliance continues to be a priority area for HMRC investigations. It can be a difficult area, fraught with technical risk. Many of the rules are counterintuitive and often employers make inadvertent errors which lead to NMW breaches. Understanding your obligations as an employer in terms of worker type classification, working time, pay and deductions, and record keeping are key to getting pay levels right.
We have summarised the common pitfalls amongst the employers named in the latest naming scheme below.
- Meals;
- Parking permits / travel costs;
- Training costs;
- Work equipment or personal protective equipment costs;
- Uniform and workers purchasing clothing to meet dress codes;
- Christmas savings schemes;
- Childcare costs; and
- Salary sacrifice schemes such as cycle to work and pension
These breaches demonstrate the counterintuitive and technical nature of some of the NMW rules. For example, some employers may be surprised to learn that reductions or deductions employees have voluntarily agreed – such as for a Christmas savings or salary sacrifice schemes – can cause NMW issues. It’s therefore important to implement and review policies (whether formally communicated or informally agreed) to identify relevant NMW risks and incorporate appropriate checks and controls within payroll and HR systems to ensure these are minimised.
2. Unpaid working time
The second key factor was unpaid working time, which covered almost a third of employers on the list. HMRC identified unpaid working time in the following circumstances:
- Additional work before and/or after a shift;
- Travel time;
- Rounding clock-in time to the nearest hour, half hour or 5 minutes;
- Overtime;
- Working more than ‘regular’ contracted hours without additional pay;
- Delays in ad hoc payments;
- Training time;
- Trial shift; and
- Salaried hours workers working in excess of basic hours.
Employers should therefore ensure that their policies around recording and paying all working time are clear, compliant, and subject to robust controls, audits, and testing.
It’s also important to appreciate that certain groups of higher paid employees can still present an NMW compliance risk, and take care to identify and monitor those groups appropriately (see our earlier article for an example concerning salaried workers earning £50,000 per year).
3. Incorrect apprenticeship rates
Several employers misapplied the apprenticeship rules, failing to pay workers aged 19 and above the appropriate rate on completion of the first year of apprenticeship, incorrectly classifying apprentices and therefore paying below NMW, or failing to increase pay on completion of an apprenticeship.
Apprenticeship breaches are typically driven by a lack of controls and checks within payroll and HR: these can be avoided with careful monitoring and transparency between teams.
4. Other factors
Other breaches of NMW included:
- Failure to pay the uprated minimum wage (for example when a worker reaches a certain age or in line with the 1 April increase);
- Failure to correctly apply the accommodation offset;
- Incorrect categorisation of the type of work undertaken (e.g. salaried or unmeasured); and
- Incorrect worker status, for example, treating a “worker” as self-employed or engaging an intern on an unpaid basis, who should really be classified as a worker with the associated NMW and other employment law rights
These issues stem from a misunderstanding of how to categorise the workforce (the starting point for NMW compliance) and systems issues which can easily be overlooked. Even if your business is familiar with the rules and has systems and checks in place, it’s always worth an independent review to ensure your compliance framework is fully robust.
Record keeping
In order to ensure compliance with NMW, employers must maintain clear records outlining hours worked and payments made to their workers. Workers and HMRC compliance officers have the right to request records. Refusal to provide records when requested may lead to criminal sanctions for the employer. Additionally, where an employer fails to allow a worker access to the records within 14 days of a written request, the worker can bring a claim in the employment tribunal. Tribunals can award up to 80 times the relevant NMW rate.
Additionally, from 6 April 2025 HMRC will require more granular detail on the hours employees work to be submitted via PAYE Real Time Information. Compliant employers could find that the likelihood of being selected for a risk based NMW review increases if they fail to report accurate hours worked data. It’s therefore important that employers don’t impair their NMW risk rating by inaccurately reporting working hours when these new obligations come into force.
NMW enforcement
In addition to regularly published a list of non-compliant employers’, HMRC’s enforcement powers include recovery of underpayments, civil penalties and criminal prosecution. The potential civil penalty could be up to 200% of the total underpayment for all impacted workers, or up to £20,000 per impacted worker. Criminal prosecution is reserved for the most serious cases, for example where employers persistently breach NMW requirements or fail to cooperate with HMRC during their investigation.
How KPMG can help
KPMG’s team of Employment Tax and Employment Law are experts in advising clients on NMW compliance. We regularly work with employers who are investigated by HMRC, to offer a technical view on any issues raised, and provide support and guidance on how to work through the investigation. We also provide a ‘health check’ to help identify any issues and address them on a self-correction basis, outside of an investigation framework. Please get in touch with us if you have any questions.
