06 February 2022

Tim Bridgett, employment taxes senior manager at PSTAX explores common breaches relating to national minimum wage (NMW) and national living wage (NLW)

In December 2021, the Department for Business, Energy and Industrial Strategy (BEIS) produced its latest list, which ‘named and shamed’ 208 employers who failed to pay their staff at the NMW/NLW.

Employers named in this list, which is the 18th published to date, range from multinational businesses to small companies and sole traders. The biggest surprise to us here at PSTAX is that this is the first list we can recall where a local authority has been included, in this case, a county council. This is clearly a sign that no employer is exempt from the consequences of not paying staff at the statutory rates.

An educational bulletin is produced alongside the name and shame list, giving further information about common ways employers have breached the NMW/NLW levels for employees.


Deductions from (or reduction of) wages

We have spoken about this at many of our own client forums, so it was no surprise to see the biggest proportion of cases noted in the bulletin relate to deductions from wages which have taken pay below the minimum rates. Deductions include those in areas

such as:

  • Christmas savings schemes

  • childcare costs

  • training costs met by the employee

  • the purchase of clothes to meet a dress code

  • attachment of earnings administration fees.

As the NMW guidance clearly states, deductions made that are for the employer’s own use or benefit will reduce an employee’s pay for NMW purposes.

The use of salary sacrifice schemes must be closely monitored as reductions in gross salary for certain benefits in kind can have a significant effect. However, BEIS confirmed back in October 2020, that where there is a NMW breach due to salary sacrifice, and certain criteria is met, the employer will not be penalised or named. The conditions can be found here: http://ow.ly/wfP630s8Ag0. However, this should not be taken to mean that salary sacrifice no longer affects NMW. It clearly does.


Unpaid hours

Nearly 30% of the errors noted by BEIS were caused by unpaid working time. The examples quoted include:

  • additional work before and after a worker’s shift

  • rounding clock-in time to the nearest hour

  • time spent travelling or training

  • time spent working on a sleep-in shift.

In the notable Mencap case that covered sleep-ins, the Supreme Court announced its verdict in March 2021, and confirmed that it is only time spent awake and working during a sleep-in that counts as working time for NMW purposes. This was welcome news for several of our own public sector clients.

For salaried workers, NMW calculations are determined in accordance with their annualised hours. Where actual hours worked exceed the basic hours in the calculation year, employers must ensure this additional time is also considered. It’s essential employers can identify a salaried worker’s annualised hours to monitor whether the basic hours are exceeded. By default, a salaried hours worker’s calculation year generally begins on the anniversary of their start date. Following recent changes to legislation, employers may now change the calculation year for each of their salaried hours workers, provided that certain requirements are met. They must give at least three months’ written notice and a change must not have already been made in the previous six years. This means employers could arrange for all workers to have the same calculation year, should they wish.



16% of NMW breaches noted related to apprentices. Where employers pay apprentices, care must be taken to accurately track their age and which year of their apprenticeship they’re in. Where an apprentice is aged over 19, has completed the first year of their apprenticeship and is still paid at the apprentice rate, this will be in breach of the rules. Instances were also noted where workers were incorrectly classed as apprentices and were, therefore, underpaid.

In June 2021, Her Majesty’s Revenue and Customs (HMRC) released promotional material bringing together various aspects of payments to apprentices, and providing templates for employers to use on Instagram, Facebook and LinkedIn. We would really welcome further releases of this nature by HMRC. The material can be located here: http://ow.ly/lXSl30s8AwJ.


Worker status error

One of the surprising areas noted in the bulletin related to ‘worker status error’, where workers had been incorrectly treated as self-employed, or where the individuals were unpaid interns who should have been treated as paid workers. Clearly the remit of HMRC’s NMW compliance teams goes beyond that of merely reviewing employed workers, but also branches out into employment status. This is something that all employers/engagers should bear in mind.

In the December 2021 ‘name and shame’ list, 208 employers failed to pay their workers around £1.2 million and were liable to penalties of nearly £2 million. Clearly, the NMW is a complex area and professional advice should always be sought where there is any doubt at all. 

See the December 2021 naming round here: http://ow.ly/GHkY30s8tOP.

The educational bulletin can be found here: http://ow.ly/AER830s8tO9.


Featured in the March 2022 issue of Professional in Payroll, Pensions and Reward. Correct at time of publication.