Not Paying Minimum Wage & The Debenhams Payroll Error
It can hardly have escaped many people’s attention that Debenhams underpaid some of their staff and failed to meet the National Minimum Wage (NMW) or National Living Wage (NLW) when they topped the list of ‘named and shamed employers recently. In fact, what was explained as a payroll error cost them their reputation and a hefty £35,000 fine on top of the underpayments to staff. Most employers think they are in safe territory and that it is easy to calculate the NMW.
So what happened here? How could a long-standing British company operating across many countries make such a basic error and how can you avoid joining that list as an employer purely by accident? It’s a sad truth that some of those employers on the naughty list will have ended up on this purely by unintentional consequences or where they believe that they have been acting legally.
As is often the case in employment legislation, something seemingly very simple (eg holiday pay calculations) can actually turn out to be more difficult than it looks. So here’s a guide for employers who could quite easily make a few mistakes or assumptions made when it comes to the NMW.
The NMW Doesn’t Apply As The Individuals Are Self-Employed
Great, if they genuinely are self employed. But bear in mind that the courts are increasingly considering that any of those who give a ‘personal service’ to your business are more likely to be workers, and therefore entitled to the NMW. (You may have seen reported the recent UBER and Pimlico Plumbers cases)
You Are Paying The Wrong Level of NMW
There are five different statutory rates payable dependent on age and position and these change, at least annually, as set out below.
|Current||1 April 2017|
|Apprentices receive the 'development rate'*||£3.40||£3.50|
|Those aged 16-17 receive||£4.00||£4.05|
|Those aged 18-20 receive||£5.55||£5.60|
|Those 21+ receive||£6.95||£7.05|
|Aged 25+ receive the National Living Wage||£7.20||£7.50|
*There are specific rules on when this rate should be paid. The BERR and ACAS websites can be helpful here.
A key aspect here is keeping an eye on any increases made by the government. This usually happens in October and/or April, so check annually around those times-and if you’ve accidentally made an underpayment, rectify this as soon as humanly possible.
Knowing What Can & Can’t Be Included In The NMW Calculation
Sounds simple enough doesn’t it? And in some cases it really is as simple as just that i.e. what is the employee’s gross pay?
But did you know that bonus, commission and other incentive payments based on performance (but not any premium paid for overtime or shift work), piecework payments and accommodation allowances can also be included?
Exclusions From NMW?
You might be surprised to note that benefits in kind are excluded, even where these have a monetary value. Loans, advances, pension payments and any enhancements on payments such as shift premiums or overtime payment are also excluded. An obvious exclusion might also be expenses and travel expenses, but tips and gratuities are still a grey area and some fall within while others fall outside the NMW calculation.
Deductions From NMW?
There are very specific provisions within the NMW Regulations which allow employers to make deductions which might take the employee’s pay below the NMW. They are however very limited and great care should be taken in exercising this right. This is precisely where Debenhams (and Monsoon before them in 2015) fell foul. In both cases deductions for staff uniform took the employee’s wages below the NMW and that is not permitted under the Regulations.
Conversely, some of you might recall the Sports Direct workers who were paid below NMW due to their rather harsh contractual terms which permitted fines for lateness (of 15 minutes wages for being a second late) by their employer. Morally reprehensible you might think (particularly as much of the delay in getting in was due to stringent security checks) but perfectly legal. As it stands, Mike Ashley did agree to stop the practice I understand.
Getting What Counts As ‘Working Time’ Wrong
On call or standby? Training time? Travel time? When will these count? In truth there is a lot of case law on these complicated grey areas and legal advice really should be sought on a case by case basis.
This one can be very difficult for employers who allow homeworking or where the employee is required to take a work phone with them for evening or weekend work. In those instances I would always suggest that comprehensive time sheets are kept as not keeping records can cost a company very dear if the employee suggests that they have been working hours that they haven’t been and the business has no evidence to dispute this. In any event, this is a legal obligation and a criminal offence to boot, so you do need to keep those records.
So, in short, it’s perhaps not so difficult to come a cropper and end up on that naughty list or receiving a class action from staff going to the Employment Tribunal to enforce their rights.
If you would like to talk through any of the issues raised then please call me in confidence on 01740 646 004 for an initial discussion.