National Minimum Wage Common Mistakes

Here are some common mistakes employers make when paying the National Minimum Wage (NMW):

Not paying minimum wage for the hours worked in the pay reference period or the next reference period: The maximum reference period is 31 days so any employer averaging payments across a year needs to be careful that NMW is paid in each reference period.

Failing to pay the minimum wage following the annual increase: The new rates that take effect from April 2022 have already been confirmed. The rate for 16-17 year olds goes up to £4.81 an hour; 18-20 year olds will rise to £6.83 an hour and for 21-22 year olds it will rise to £9.18 an hour. The National Living Wage for workers aged 23 and over will be £9.50 an hour. Employers need to ensure that their payroll is prepared for the increases.

Missed birthdays: As employees turn 18, 21 or 23 years old (it previously used to be 25) and move from one rate to another, arrangements need to be put in place to ensure that the payroll information is updated sufficiently in advance of the employee’s birthday.

Paying the apprentice rate to somebody who isn’t actually an apprentice: The apprentice rate is £4.81 (from April 2022). However, there is still much confusion regarding apprenticeships. Not every new employee or trainee may be given the title of ‘apprentice’. Recognised apprentices must have an apprenticeship contract that identifies itself as a qualifying apprenticeship and undergoes an element of structured training.

Continuing to pay the apprentice rate for too long: The apprentice rate only applies to apprentices who are under the age of 19, or if aged 19 or over within the first year of their apprenticeship. If an apprentice is aged 19 or over, the increase is operative after 1 year and not necessarily at their next birthday.

Making wage deductions for items or expenses that are connected with the job: This could include, for example, safety clothing, uniforms, tools etc. These would be essential items for the work and payments for these could mean that the rate of pay is less than the minimum. This has caused confusion, particularly where the employer does not have a uniform as such but has a dress code which requires that employees wear specific types of clothing. The costs of purchasing those clothes may mean that the level of pay falls below the minimum. A similar example of this is where an employee enters into a training costs claw back agreement. Where the training is essential to the job, payment of at least NMW must be made taking into consideration the claw back deduction.

Making wage deductions that are deemed to be for the employee’s “own use or benefit”: For example, a Christmas club saving scheme. It doesn’t matter that the worker can choose to buy into the scheme and the employer doesn’t have to make a profit from it. Another example would be the provision of transport to and from work. Even if the travel arrangement is subsidised and is of benefit to the employee, a deduction for NMW calculation purposes should still be made.

Charging a worker more than the stated offset rate for living accommodation: In April 2022, the maximum offset will rise to £60.90 per week even where the rental value of the accommodation may be worth much more on the open market.

Not paying for all the time worked: Generally, all the time when the employee is at the disposal of the employer or carrying out any type of work should be counted. This includes the time spent travelling, training or downtime at the employer’s disposal. 

Not paying for additional time worked: This includes time spent clearing security checks once a worker’s shift has finished or needing to arrive earlier than their start time. For example, where the employee needs to get changed into a uniform first or to clock in.

Including elements of pay that don’t count towards minimum wage: This includes tips and the premium element of pay associated with shift premium. The additional elements of pay will not count towards minimum wage. For example, hourly rate calculations are based on the minimum hourly rate without taking into consideration the overtime premium rate.

Deducting Accommodation Costs: Employers are limited to deducting a maximum payment for accommodation when calculating accommodation that is provided by the employer. This changes each year and is currently £58.52 per week (Nov 2021).

The above is a general overview of National Minimum Wage. You should seek specialist advice if in any doubt.

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