Discovering that you are being investigated by HMRC can be very stressful, even if you are...
One of our most important jobs, as employers, is to help control payroll costs. However, one issue that is outside employers' control is the statutory minimum wages that must be paid to all employees.
Employers have a legal obligation to pay the required National Minimum Wage (NMW) or National Living Wage (NLW) rates to their employees. The applicable NMW or NLW must be paid to all workers including foreign workers eligible to work in the UK.
Over the last few years, the NMW and NLW rates have increased significantly. As a result of the coronavirus pandemic, it is possible that future wage increases could be reduced or frozen although for the time being no such measures have been announced.
HMRC can review these arrangements and have the right to carry out checks and see wage payment records at any time. Employers in breach of the regulations will be required to pay any arrears to their staff immediately. Employers may also be fined and “named and shamed” by HMRC.
The rates are updated annually, during April.
The rates per hour are:
|National Living Wage||2021-22||2020-21|
|Aged 23 & over (2020-21: Aged 25 & over)||£8.91||£8.72|
|National Minimum Wage||2021-22||2020-21|
|Aged 21 to 22 (2020-21: Aged 21 to 24)||£8.36||£8.20|
|Aged 18 to 20||£6.56||£6.45|
|Aged 16 and 17||£4.62||£4.55|
The rates coming into effect from 1 April 2021 mirror the recommendations made by the Low Pay Commission (LPC) which have been accepted in full by the Government. The LPC was established following the National Minimum Wage Act 1998 to advise the Government on the NMW and NLW rates. The LPC recommended smaller minimum wage increases for those aged under 23 in recognition of the risks to youth employment which the current economic situation poses.
It is important to remember there are penalties for employers that are found to have underpaid their workers. It is a criminal offence for an employer to ignore their minimum wage obligations. HMRC has been actively targeting employers to ensure that they are paying workers what they are entitled to and historically the hospitality sector has proved a successful hunting ground for HMRC. Employers also face being ‘named and shamed’.
You may also hear reference to the Living Wage Foundation. The Foundation sets a separate living wage that is meant to reflect the real cost of living. These rates are currently set at £10.85 an hour for London and £9.50 for the rest of the UK. These rates are voluntary pay benchmarks that employers can sign up to if they wish. They are not statutorily binding but over 7,000 businesses across the UK have committed to pay these higher rates including employers in the public, private and third sectors.
As more organisations sign up to pay more than the minimum wage it may be important to consider what you can do to attract and retain the best staff for your business. Perhaps, there is an added benefit to paying your staff a little more than your competitors?
National Minimum Wage and Furlough
An interesting quirk of the Coronavirus Job Retention Scheme is the fact that furloughed workers are not entitled to the minimum wage. HMRC's guidance categorically states that 'individuals are only entitled to the NLW / NMW / Apprentices Minimum Wage for the hours they are working or treated as working under minimum wage rules.'
This means that workers that earned the minimum wage will end up with less than the hourly minimum wage when they are furloughed. There is also no requirement for their base salaries to be increased to reflect changes in the minimum wage rates whilst on furlough. These new rates would obviously need to be paid if and when the furloughed workers start working again.
However, if time is spent on training whilst furloughed then the relevant Apprenticeship Minimum Wage, National Living Wage or National Minimum Wage must be paid for all relevant hours and any minimum wage increases must also be taken into account.
If there is a shortfall between the amount paid whilst an employee is on furlough leave and the appropriate minimum wage, then the employer will need to cover the difference.