The Most Common Payroll Errors with the Minimum Wage

As always with payroll, there are times when you might think you are doing things right when in fact you’re not. This is particularly true with the National Living Wage and National Minimum Wage. With changes to these coming in soon, it is interesting to see that HMRC have just published the top ten ways that employers might not be paying the minimum wage even though they think they are.

The Top 10 Mistakes Employers make with the Minimum Wage

1. Failure to apply the increase from 1 April each year.

2. Failure to increase an employee’s rate of pay to the new minimum wage for their age when they pass the main age thresholds: 18, 21 or 25.

3. Paying the apprentice rate to an employee who is not an apprentice.  To qualify, apprentices must have an apprenticeship contract as well as a structured training plan.

4.Continuing to pay the apprentice rate for longer than the rules stipulate. The apprentice rate only applies to apprentices who are aged under  19, after which it is for the first year only.

5. Making deductions from wages for items that are often considered part of the job: for example: protective clothing, uniform and tools. This cannot be done with the minimum wage as such deductions will reduce the pay to below the minimum.

6. Making wage deductions for items which are considered to be for the employer’s own use. The same argument applies here as in 5. Above.

7. Charging an employee for accommodation at more than the stated offset accommodation rate.  The rate changes each year.

8. Not paying for all time worked. This could include work related travelling time, training or downtime.

9. Not paying for additional time a worker spends clearing security at the end of their working day.

10. Including additional payments such as tips which are not counted as part of the minimum wage.

These are just the top 10. In reality, there are many other ways an employer might not be paying the minimum wage.  If you are uncertain, please contact us.

How to Check You are Paying the Right Hourly Rate

There is a simple calculation that you can use to check  the hourly rate you are paying.

  • Take an employee’s annual salary and divide it by 52.14 and then divide that figure by the number of hours per week they work.  However, before you complete this calculation you must take off any deductions which are made from the employee’s pay (excluding tax, NI and pension deductions).  For example if the employee has to pay to rent their tools or their uniform this would be deducted from their pay before calculating the hourly rate.

Once you have calculated the hourly rate for each of your employees you should compare this to the minimum wage to ensure you are paying the correct rate for their age.

It is a Criminal Offence Not to Pay the National Minimum or Living Wage

As HMRC points out, It is a criminal offence for employers to not pay someone the National Minimum Wage or National Living Wage, or to fake payment records.

HMRC have the right to carry out checks at any time and ask to see payment records.  They can also investigate employers if an employee makes a complaint about their employer.  Payment records must be retained for 3 years as proof of payment.

If the employer has made an error – such as detailed in the top 10 errors above – they will be expected to pay the arrears immediately along with a fine.

Contact Us for Help With the Minimum Wage

If you need some help with the Minimum and Living Wage, then please contact us. Our payroll team will notify you if deductions from wages take an employee below the minimum wage in a particular pay period.  This means that we can look after all of your payroll needs so that you can get on with running your business.

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