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Top 10 mistakes employers make when paying the National Minimum Wage

Top 10 mistakes employers make when paying the National Minimum Wage
Paul Chappell
Written by
Thursday, 10 January 2019 16:23

HMRC have publicised a top 10 list of mistakes that employers make when paying employees that can affect the National Minimum Wage rates.

Most of the list is self-explanatory, however I do have issues with some of the guidance given, so have added some of my own thoughts and commentary.

1) Failure to apply the annual minimum wage rate increase as they go up each year on 1 April.

Ensure rates are updated at the start of each tax year. The Chancellors main Budget sets the rates for the following tax year.

2) Missed birthdays as employees turn 18, 21 or 25 years old and move from one NMW rate to another.

Accurate employee personal records should ensure that rates are updated on the appropriate birthdays.

3) Paying the apprentice rate to somebody who isn’t actually an apprentice. Recognised apprentices must have an apprenticeship contract and undergo an element of structured training.

Apprenticeship rates should only be paid for employees on apprentice contracts.

4) Continuing to pay the apprentice rate for too long. The apprentice rate only applies to apprentices who are under the age of 19, or if aged 19 or over within the first year of their apprenticeship.

Paying an apprentice on the apprentice age rates is a favourite target for HMRC, ensure accurate records of apprentices are retained to ensure NMW compliance.

5) Making wage deductions for items or expenses that are connected with the job. This could include, for example, safety clothing, uniforms, tools etc.

Work specific tools and clothing are normally provided by the employer. If not the employee may purchase such equipment and claim tax relief from HMRC, employers must NOT deduct such costs from gross pay thereby reducing the hourly rate.

6) Making wage deductions that are deemed to be for the employer’s “own use or benefit”. For example a Christmas club saving scheme. It doesn’t matter that the worker can choose to buy into the scheme and the employer doesn’t have to make a profit from it.

My recent blog on the Iceland Foods Ltd NMW enquiry has highlighted HMRC’s aggressive view on deductions form employees. This point specifically refers to the Iceland case. Worryingly, HMRC have highlighted this as a ‘mistake’ before the case has been settled. The advice if deductions are to be made from gross pay, is seek professional guidance before considering such schemes or deductions.

7) Charging a worker more than the stated offset rate for living accommodation, currently £49 a week.

When accommodation is provided by the employer, whether a charge is made or not, the NMW regulations allow for a weekly deduction to be made by the employer.

The current offset rate is £49 per week (rising to £52.85 in April 2019). If the amount does not exceed £49, although the deduction may take the average hourly rate below the NMW rate, the reduced hourly rate will still meet the NMW regulations. Of course a higher deduction will potentially cause the employer to fail to meet their NMW obligations.

8) Not paying for all the time worked such as time spent travelling, training or downtime at the employer’s disposal.

This is a wide ranging subject and will affect employees travelling on busy journeys such as care workers travelling between clients homes.

Travelling time is, for the most part, classed as time at work and should be paid as such. Similarly, if training is a requirement of the job, this time must be provided for and paid for by the employer.

9) Not paying for additional time worked such as time spent clearing security checks once a worker’s shift has finished.

I have been involved with a NMW enquiry where HMRC have tried to argue that employees are at work, for NMW purposes, when passing through a security gate, although the place of work may be a 10 minute walk away. The security gate is there for the purposes of restricting access to a site. This should not impact on the time that work commences. HMRC have relented on this case, however expect further resistance.

10) Including elements of pay that don’t count towards minimum wage such as tips and the premium element of pay associated with shift premium. For further information read our guide for employers.

Tips, are a whole detailed blog on their own. However an employer cannot use tips as a means to bolster the hourly rate up to the NMW rate. HMRC are increasing their compliance in the hospitality sector, employers must ensure that tips are not part of the hourly pay rate.


If you would like to discuss any of these issues or would like more information, contact Paul Chappell on 03331 123456

Paul Chappell

Paul joined Dataplan from HM Revenue and Customs in 2007 and runs our PAYE compliance and investigation services.

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