Are you actually paying the National Minimum Wage or Living Wage?

The National Minimum Wage and National Living Wage were introduced to provide a safety net for the lowest paid in society, ensuring their hourly rates had some correlation to average earnings.  Set by the Government, the hourly rates are specified annually by age category and there is a legal duty on companies to pay these rates to staff. Whilst it has put an added burden on companies and the annual increases feed directly into their overhead costs and impact their bottom line, there is a broad acceptance that these minimum rates do help many workers and form part of the moral duty on employers.

However, whilst the overwhelming majority of companies comply and pay the specified rates, it has been identified that certain working practices or employers strict requirements can mean that the actual rate of pay falls below the legal minimums. If any of your staff are on the NMW or NLW, you may want to investigate to see whether you fall foul and your employees are actually being paid less that they should.  

So, when is the hourly rate not the hourly rate?

There are two main reasons why the rate you pay, may not actually be the rate your employees receive and its nothing to do with taxation. The first reason for not meeting the National Minimum Wage or Living Wage is deductions. Deductions can take many forms, not all are obvious. For instance, salary sacrifice schemes, parking permits or deductions for food/meals whilst on shift can have an impact, whether nominal or significant, on the actual rate of pay.

The other reason hourly rates are impacted is working practices and requirements placed on staff by the business. Good examples of this may be unpaid travel time (not commuting) or employees having to buy their own uniform to meet strict uniform policies. Requiring employees to travel between sites in addition to their hourly work or not paying travel time; and setting a uniform expectation but without supplying the uniform mean that employees are having to bear these costs themselves. Because they are left with no other alternative or choice, it is a deduction in real terms.

Employees who receive the NMW or NLW but on an annual salary basis, will also drop below the threshold if they work any hours over and above their contracted working time and are not remunerated accordingly.

It’s not just SMEs getting it wrong

The impact of paid lunches, parking permits and the cost of a pair of trousers may sound quite trivial, but the Department for Business and Trade understands that for the lowest paid in our workforce, the impact is far from trivial. The Department is also aware that employees believe any attempt to query or challenge these working practices, deductions or employment rules could endanger their employment, risking the income they do get. Therefore, few speak up for themselves to raise the issue.

But if you’re reading this and thinking it may apply to your employees, don’t be alarmed, you’re very much not alone. In fact, such is the scale of the issue, the Department for Business and Trade actually publishes a name and shame report each year which includes a huge number of big brands and household names on it.  As well as issuing penalties, the Department requires employers to make good their duty and reimburse employees any missing amounts. The reality is these are often very small amounts, but when each minute carries a value, any reduction is felt keenly.