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National Minimum Wage – technical breaches sought out by HMRC

Posted on 2 October 2018

National Minimum Wage – technical breaches sought out by HMRC

As we near the 20th anniversary of the introduction of the National Minimum Wage ("NMW"), HMRC appear to be taking an increasingly strict approach to enforcement of the NMW legislation.

There have been a number of recent instances where employers have intended to pay the NMW, but the way in which employee benefits have been structured has led to HMRC taking the view that there have been technical underpayments of wages. 

For example, we are aware of cases where HMRC has sought to argue that deductions from wages as part of a staff saving scheme have resulted in an underpayment of wages, even though the scheme was established to benefit employees and entered into voluntarily.  In another case, workers asked their employer to make a deduction from wages to cover the cost of clothing (which was purchased voluntarily and not part of the worker's uniform), yet HMRC still perceived this as an underpayment.

Breaches can result in Notices of Underpayments ("NOU") being issued, along with penalties as high as 200% of any underpayments, which can cover a 6 year period.  The government has also published details of employers paying workers below NMW.  As a result, employers need to take additional care to ensure that they are not "named and shamed" for inadvertent technical breaches of the legislation.

The NMW legislation was introduced to “eradicate the worst cases of exploitation” (as commented by the Chairman of the Low Pay Commission at the introduction of the NMW in 1999), but recent investigations by HMRC arguably seek to enforce the legislation in cases where no exploitation exists.  

Employers in lower-wage sectors such as hospitality, catering, retail and residential care, may be affected by this approach.

To minimise the risk of action by HMRC, employers should review the position of those employees who are paid on or around the NMW and consider whether there are any grounds for HMRC alleging underpayments.  By taking early action to review their NMW affairs, employers can mitigate their exposure as HMRC cannot issue NOUs if the employer has repaid alleged underpayments to employees before HMRC commence an investigation.

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