Over 200 employers — including some well known hospitality and retail brands — have been ‘named and shamed’ by the Government for failing to pay their people the minimum wage.
Here, Partner and employment law specialist Lee Jefcott considers the common ways that employers in the retail, leisure and hospitality sectors can unwittingly fall into the trap of not paying the minimum wage and how they can best avoid this in future.
Why are employers being named and shamed?
Naming and shaming is part of the Government’s enforcement action against employers who don’t pay the minimum wage. This is a deterrent that can cause significant reputational damage to a business.
Those named must pay staff what they are owed, together with a financial penalty of 200% of the underpayment. In total, penalties of nearly £7m were levied on the 200+ employers as a result of almost 63,000 workers being left out of pocket.
Retail, leisure and hospitality business are uniquely exposed to national minimum wage risks since they have a greater number of employees who are paid the national minimum wage (or just above it) than most other business sectors.
Common minimum wage pitfalls
Importantly, not all of the employers named will have made a deliberate underpayment to their employees. Businesses often make inadvertent mistakes that can get them into trouble.
The three main reasons for non-compliance (as set out by the Government) are that:
- 39% of employers deducted pay from workers’ wages.
- 39% of employers failed to pay workers correctly for their working time.
- 21% of employers failed to pay the correct apprenticeship rate.
The common pitfalls that lead to non-compliance include:
Wage deductions
This may include deductions for stock or till shortages, training or travel costs and asking staff to provide their own uniforms or equipment. Where deductions or payments take a worker’s pay below the minimum wage, this would amount to an underpayment.
Uniforms and equipment
Some retailers may require their employees to purchase and wear the retailer’s own clothes as their uniform or a particular colour of clothing. In both situations, this expenditure would be treated as reducing pay.
Working time
All employees must be paid the appropriate minimum wage for every minute that they work. Issues can arise in relation to activities that take place before or after a worker’s shift, including security checks, handovers, opening or cashing up, team meetings and training (including being asked to complete online training modules at home). HMRC compliance officers frequently gather ‘evidence’ of such activities from employees . Employers that are unable to provide evidence that such time is paid may experience issues.
Age brackets
Minimum hourly wage rates are dependent on the age of the employee. This will most likely impact younger workers, where minimum wage rates change frequently for those aged between 16 and 23. Often, employers will unwittingly fall foul of the rules when their payroll software fails to ‘uprate’ pay following birthdays.
Apprenticeship rates
A special rate is paid to apprentices who are under the age of 19 (or those 19 years of age or older in the first year of their apprenticeship). Where apprenticeship rates are paid, the employer may be required to establish that all the necessary requirements are in place, including a written apprenticeship contract.
Five top tips to avoid minimum wage underpayments
The top ways that employers can avoid underpayments are:
1. Monitor employee ages
Make sure your payroll system alerts you when a worker is approaching a birthday that would put them into the next minimum wage threshold. Your payroll team or provider must then action the correct rate of pay.
2. Correctly classify apprentices
Ensure that you correctly classify employees as apprentices and pay them the correct higher rate of pay once an apprenticeship has been completed.
3. Measure all working time
Measure all working time and ensure accuracy. You must make sure that any overtime is recorded.
4. Be cautious with deductions
Any deductions from pay — even where the deduction is for a benefit in favour of the employee, like with a Christmas savings club or raffle — can often reduce pay for calculation purposes.
5. Take care with the accommodation offset
The same applies to where accommodation is provided to employees. Take care in operating the ‘accommodation offset’, since deductions over and above the current rate of the offset will reduce pay.
How we can help
Our award-winning employment team helps employers to identify risks and implement fixes. We can carry out an audit to assess your risk exposure and recommend a suitable action plan.
We advise and support employers in tricky areas including dealing with HMRC compliance officers, advising on dealings with HMRC, supporting on investigations and appealing notices of underpayment and penalties.
Talk to us by completing our contact form below.
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