With new National Minimum Wage (NMW) rates coming into force on 1 October 2016 - here's a reminder of the penalties employers could face if they fail to pay correctly.

Update

The Government recently named and shamed nearly 200 employers for failing to pay their workers the NMW - to see the list click here.

Since the scheme's inception in October 2013, the Government has publicly embarrassed nearly 700 employers, with NMW arrears totalling more than £3.5 million. This latest round of disclosure accounts for nearly £500,000 of NMW arrears.

National Minimum Wage

From 1 October 2016 the rates for the NMW will rise as follows (current rates shown in brackets together with percentage increase):

  • Apprenticeship rate: £3.40 (£3.30 +3%)
  • Workers ages 16 to 17: £4.00 (£3.87 +3.4%)
  • Workers aged 18 to 20: £5.55 (£5.30 +4.7%)
  • Workers aged 21 to 24: £6.95 (£6.70 +3.7%)

The National Living Wage (NLW) will continue to apply, currently set at £7.20 per hour, for all workers aged 25 and above. The NLW is expected to increase in April 2017, with NMW also rising again on that date to bring the two rates into alignment. As yet, we do not know what next year's increases will be although the government previously expressed an ambition for the NLW to hit £9 by 2020 - which would require annual rises of between 6 and 7%.

Penalties

It is unlawful for employers to pay workers less than the NMW (or NLW). If an employer doesn't pay the correct rate, a worker can raise a formal grievance with their employer or complain to HMRC who will in turn investigate the matter. If HMRC finds that an employer has not paid at least the correct rate, they can send a notice of arrears and impose a penalty.

From April 2016 the maximum penalty increased from 100% of arrears to 200% or arrears (but is halved if paid within 14 days). The overall maximum penalty per worker remains unchanged at £20,000. Business owners who fail to pay can also be banned from being company directors for up to 15 years.

Comment

Many examples of non-compliance are not intentional but occur because of administrative failings. Employers therefore need to ensure that they have the correct systems in place to identify when workers move from one rate to another and that correct rates are being paid at all times. Best practice in this area will prevent organisations being named and shamed.

Given the continued rises in NMW (and NLW) employers also need to consider the effect on other wage bill costs such as pension and national insurance contributions, and factor the necessary changes into their budgets.