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10 October 2016

Beware the perils of paying your employees


I operate a manufacturing business employing 100 staff and my payroll manager has advised me of the new National Minimum Wage rate from 1st October. What is this new rate and what happens if I don’t apply it?


National minimum wage (NMW) rates increased on 1 October 2016 by between 3% and 4.7% for workers under the age of 25 and apprentices, and employers need to make sure the new rates are implemented for all hours worked from that date.

As of 1 October, low paid workers received a boost in their wages as a new National Minimum Wage rise came into effect. These low paid workers will reap the benefits of the National Minimum Wage, seeing those who work over 35 hours a week earn £450 more every year.

Workers aged 18 to 20, and 21 to 24 will all see an increase of 25p, raising their wages to £5.55 and £6.95 respectively.

Apprentices under 21, estimated to number around 210,000 nationwide will see their wages rise by 10p to £3.40 an hour. Young workers, ages 16 to 17 will see their wages increase to £4 an hour.

Employers must now pay those entitled to minimum wage the new rates or face punishment and also being named and shamed on a public register, with the HRMC enforcement budget gaining an extra £7 million. But it isn’t just the headline rate that businesses need to be aware of, as in many cases other factors need to be considered, and it is generally these issues which cause employers to fall foul of the legislation. For example, where an employer requires an employee to provide their own uniform or piece of equipment the cost should be taken into account when considering whether NMW has been paid.

Similarly, as seen in many of the recent high profile cases, it is important to understand what hours should actually be included as hours worked. It could also be a simple administrative error such as not spotting that an employee has reached a milestone age which takes them up into the next rate. HMRC has wide-ranging powers to conduct compliance checks and with the possibility of employees contacting the HMRC through the pay and work rights helpline, it is essential for employers to get it right.

Unfortunately, even where the error is simply one of poor administration with no intent to short-change the employee, employers leave themselves open to substantial penalties and the likelihood of being named and shamed for failing to pay the NMW, with very few grounds for appeal, even where the total amount involved is very small – presenting a real reputational risk to any business.

Last month saw the largest list of employers ‘named and shamed’ for failing to pay their staff the NMW to date. A number of high-profile cases have hit the headlines in recent weeks, so employers need to be more aware than ever of the pitfalls and problems surrounding this area of employment legislation.

With so many pitfalls and such severe repercussions for getting it wrong employers should take extra care to review their systems carefully to ensure compliance.

The advice above is specific to the facts surrounding the questions posed. Neither FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
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