Earlier this year WH Smith, Marks & Spencer and Argos were among a string of companies named for failing to pay the national minimum wage. It appears the main reason for this was a misinterpretation of the rules regarding uniforms. We asked Stephensons to outline the problems employers can encounter regarding the minimum wage and how to avoid falling foul of the legislation.
The National Minimum Wage (‘NMW’) is the set minimum hourly rate employers are required to pay their workers. The rates typically change on an annual basis, in April every year. The rates for 2023 are as follows:
Ages 23 and over = £10.42 per hour
Ages 21 to 22 = £10.18 per hour
Ages 18 to 20 = £7.49 per hour
Apprentice*(applicable to those under aged 19 or over aged 19 and in the first year of their apprenticeship) = £5.28 per hour
*Note that Apprentices are entitled to the minimum wage for their age, if they are both aged 19 or over and have completed the first year of their apprenticeship.
Failure to comply with the National Minimum Wage
To assess compliance with the NMW Regulations, you should calculate the number of hours a staff member has worked (or is deemed to work under the terms of their employment) by the pay that they have received. This should identify how much the worker has been paid by the hour, which should be no less than that rate of pay applicable to that individual (in line with the guidance above for rates of pay).
Records of this data should be retained in line with the NMW regulations and should be available for inspection by the HMRC, if requested.
Whilst the enforcement of NMW is primarily a responsibility of HMRC, workers who do not receive the minimum entitlements may also bring claims in the Employment Tribunal for Unlawful Deductions to Wages or Breach of Contract.
As outlined above some big names have made mistakes when it comes to uniforms costs. According to the BBC news article. The retailer said it had misinterpreted rules around uniforms, having asked staff to wear specific coloured trousers, skirts and shoes without reimbursing them for it.
We asked Stephensons to help clear this complex area up for us.
Subject to the nature of the work, some workers may be required to wear uniforms. In those circumstances, and where an employer requires a worker to wear and pay for specific clothing to carry out their role, it is likely that the HMRC will consider payments (at the expense of the worker) for such items to be a deduction to wages (i.e. certain colour trousers). This poses risks to employers where they are paying said workers NMW (or close to this rate), as the deduction may therefore cause the pay to fall below the minimum rates for that employee.
Whether uniform is shown as a direct deduction, a salary sacrifice, or from workers’ pay (by themselves), you do still need to ensure that you meet the national minimum wage requirements for that individual. This is why many employers choose to have uniform fees deducted from pay directly, as it allows you to ensure compliance with the national minimum wage requirements.
Where uniform is optional (for example where a uniform is not required or where a worker freely chooses to pay for additional items of uniform) any payment to the employer or a third party will not reduce National Minimum Wage pay.
Childcare Costs as a deduction & National Minimum Wage
Another area to be mindful of is if you offer staff the opportunity to pay for childcare directly from their salary. You need to be aware of the effect this has on the minimum wage similar to the uniform costs above. According to the HMRC; If a worker has childcare costs deducted from pay, and paid by the employer to a third party (not the company they are employed by) on the worker’s behalf, the deduction will not reduce the worker’s National Minimum Wage pay, provided it is the worker’s liability to make the payment (NMWM11180).
However, if the worker is employed at the nursery, the deduction is not being paid to a third party but instead is being paid to the employer and so will always reduce National Minimum Wage pay. In these circumstances, the deduction is made for the use and benefit of the employer (NMWM11020).
Therefore, if you are offering your team, discounted childcare as an employee benefit, you must ensure their salary minus the cost of childcare is in line with and not below the national minimum wage.
Paying below National Minimum Wage?
In circumstances where the HMRC assess that an employer has failed to pay a worker the NMW relevant to them, they may face the potential penalties detailed below:
• Service of notices of underpayment
• Civil penalties
• Naming and shaming
• Recovery of underpayments through Tribunals or Civil Courts
• Criminal prosecution
It is advisable, therefore, that employers keep this under careful review, particularly in circumstances where their workers are subject to uniform/childcare deductions from their pay.
If you have questions about your uniform policy or national minimum wage, more generally please contact our employment law team.