Can Employers Underpay Employees, even with the National Minimum and Living Wages

The National Minimum and National Living Wages have been with us for some time, now, and yet it is the case that there are still many cases where employers underpay workers, either deliberately or accidentally. This article looks at how employees manage to underpay workers, despite the legislation, and what the Government is doing about it.

In what ways do Employers underpay Workers?

There are a number of ways:

  • Incorrectly applying the accommodation offset
  •  Underpaying Apprentices
  • Taking deductions from employees’ wages for uniforms
  • Not using the correct time periods to calculate pay
  • Not paying travel time

It is believed that underpaying workers on the national minimum and living wages totals more that £1.4 million. Employers who underpay employees below the minimum wage are required to pay back the difference at the current minimum wage rates. If this does not happen promptly, than the Government has the statutory right to penalise these employers by up to 200% of the outstanding arrears, with the maximum penalty being £20,000 per employee.

The Government’s Campaign to Address This Issue

The Government has launched a campaign to encourage underpaid employees to make a complaint to HMRC. It is understood that this campaign has resulted in c.22,000 employees underpaid by 239 employers receiving £millions in back pay. In addition, penalties totalling c.£2m were levied on these transgressors.

A Quick Reminder

All employees are entitled to the national minimum wage, as the table below shows, whilst employees over 25 are entitled to the national living wage, at the current rates.

  • 25 and over £7.83
  • 21 to 24 £7.38
  • 18 to 20 £5.90
  • Under 18 £4.20
  • Apprentices £3.70*

What Deductions Can Be Made from The National Minimum and Living Wages?

The following are the only deductions that can be made that can reduce pay to below the national minimum and living wages:

  • Tax or National insurance
  • An advance of wages or repayment of loan
  • Buying shares or having share options in the business
  • Accommodation that is provided by the employer
  • Repayment by the employee of an accidental over payment of wages

As ever, with Government legislation, there are always grey areas which can be confusing or simply get missed. This often happens in smaller businesses where there might not be a dedicated payroll/HR department.

This is where we come in as outsourced payroll specialist. We take ALL payroll issues off your desk, so that you can get on with running your business. Contact us or call us on 0121 422 0550.

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