HMRC announce changes to tackle National Minimum Wage compliance | Moorepay
April 25, 2023

HMRC announce changes to tackle National Minimum Wage compliance

HMRC have said that they are being more reactive and proactive this year in NMW compliance. 

With a dedicated Proactive Enforcement team, it’s a reminder to all employers to make sure your wages are water-tight. They are sending ‘nudge’ letters, reminder letters, offers of ‘health checks’ and actively visiting business of all types in these regions over this year. 

What’s new?

HMRC have told various advisory businesses that they are planning to re-visit a number of previously investigated large businesses (that have had investigations / visits over the last 6 years) to check that their recommendations were implemented and also explore current salaried staff breaches (watch out this will most likely be excess hours).

It is also reported that they are inviting several large employers to discuss payroll & NMW calculations to try and educate and support employers to put right any breaches. On this alone, how many employers currently record salaried hours actual working time? Without this, it is not possible to accurately check annualised hours, and excess hours breaches.

It is even more prevalent with the work from home culture. Do you as an employer know if your office staff are starting early, working through lunch, finishing late? They may be seen as a valuable asset who goes above and beyond, but they could be inadvertently pushing the business into a breach of NMW.

HMRC also have a Reactive Enforcement Team. This is the team who will investigate an employer on the back of a complaint to ACAS, HMRC directly by a current or previous employee, or anonymously, or by anyone who may think that a company is not being compliant.

Many issues will be of a technical nature, not that a basic hourly rate for a timed worker is below the rate due. These could be on higher salaried employees, unintentionally or not, it will still land your business on the Name & Shame list and with fines on top of making good and the effect on staff moral for current employees and causing recruitment headaches.

HMRC have set out to these groups their top 5 risk areas that will be in their sights:

  • Salaried Excess Hours
  • Additional Working Time
  • Interns & Volunteers
  • Weeks in a year for calculations:
    •  52 x 7 = 364, 52.14 x 7 = 364.98, 52.18 x 7 = 365.26, 52.2857 x 7 = 366
  • Salary Sacrifice Payments

It is essential that your business ensures that they have full procedures to ensure that they do not breach NMW in any payments. The best way to do this is ensure that you have full policies and procedures in place, and that the staff closest to the areas (mainly Payroll & HR) are fully trained in the legislations and compliance.

Some top tips that may help in following compliance:

  • Keep evidence of the actual hours worked (not contracted), and this is for salaried employees as well, and check these against the contractual hours regularly (they should be assessed every pay period). Consider a bespoke report to look at the T&A records to the NMW system report (if your software has one).
  • Review your pay codes regularly – make sure that only allowable elements (Temp & Perm) are included in the NMW calculations, don’t just presume they are or are not included.
  • Ensure you have a robust process to allocate the method of measure to the employee’s role, just because they have a contract does not mean they are salaried.  The method does not necessarily move with the employee if they change role.
  • Combine all salary sacrifice reductions (this includes pensions) in each calculation period. Remember to check if you are compliant to Salary Sacrifice rules if there is a breach, as it is a sacrifice of renumeration in exchange for a benefit, not an employee cost should the breach (and the employee must choose if they leave the salary sacrifice agreement for another form of covering the cost).
  • Consider aligning all your salaried employees onto the same calculation year – remember if you do not follow HMRC process in notifying the employee then HMRC will not recognise your company calculation year risking breaching NMW by default.
  • Check your system configuration converting weekly contractual hours to an annual figure.  The guidance says you could use 52, 52.14 or 52.18 weeks, but which of these could risk you breaching?  It is the employer’s responsibility to ensure they are complaint and using an appropriate calculation.
  • When employees reduce their contracted hours, ensure that their ongoing salary sacrifice agreements will not cause a NMW breach.  This should be a part of any procedure before any contractual change (remember as well as Salary Sacrifice is a change to T’s & C’s)
  • When an employee joins a new salary sacrifice scheme, don’t just presume that they are eligible.  You will need to assess each case individually.  Ensure you have a robust eligibility checking process for schemes that the employee directly signs up for outside of your company.
  • Check if other deductions made could trigger a breach such as court order admin fees, or recovery of training fees (especially if this is from gross pay – even if it is contractual).
  • If the business is a recognised National Living Wage payer, this does not mean that they will not risk breaching NMW, you still need to have a robust process in place.
  • Education and documentation.  Review the level of knowledge of those working in the relevant areas.  Ensure that there is ongoing training and support and that the business is supporting the teams to be compliant.  Ensure all documentation is updated every time there is a change in the legislation or internal process.
  • Ensure that you are using the correct categorisation – Salaried, Unmeasured, time and output.  If you have an unmeasured worker (i.e. someone who receives sales commission) set to salaried in your software (or manual calculation), then you will risk a breach by not performing the correct calculation.  HMRC give good examples on what category to use.

‘Our Payroll Software can help you stay compliant with payroll legislation. Check it out here.

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About the author

Cybil Watkins

Cybil is Group Product Legislation Manager with the Zellis Group, which includes Zellis, Moorepay and Benefex. A payroll geek with an obsession for payroll laws and legislations! She is also a advocate of neurodiversity in payroll & HR.

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