Regulation

Business face rising risk of NMW fines, Grant Thornton warns

The warning follows HMRC ‘intensifying’ its focus on NMW breaches, which has included a 99% increase in its enforcement budget to £26.3m since 2016

Businesses are facing an increased risk of heavy fines for unintentional national minimum wage (NMW) breaches, according to new research from Grant Thornton UK. 

The firm said it had witnessed a rise in the number of businesses being investigated for offences on the matter, usually as a result of commonplace practices such as salary sacrifice schemes and employee workwear policies inadvertently dragging employee pay under the NMW threshold. 

The warning follows HMRC “intensifying” its focus on NMW breaches, which has included a 99% increase in its enforcement budget to £26.3m since 2016 and growth in the number of dedicated NMW enforcement officers from 330 in 2017 to more than 450 today. 

In addition, the government has also increased the potential penalties facing businesses found to have underpaid their employees, which have risen from 50% of the arrears owed to workers in 2014 to 200% of the underpayment today. In 2019-2020 this led to over £18.5m in penalties being levied in over 3,300 closed investigations. 

Michelle Perry, associate director, Employer Solutions, Grant Thornton UK LLP, said: “NMW compliance is under the microscope right now and due to the myriad of challenges facing businesses it’s inevitable that some finance teams – even those with the best of intentions – could be caught out. 

“The government is encouraging at-risk workers to check their hourly rate of pay as well as any deductions or unpaid working time. A common way for employers to be unknowingly non-compliant is through employee benefits and salary sacrifices such as pension contributions. This is because they mean a reduction in base pay, and if it falls under NMW then it’s not legal.”

She added: “Situations like this are often where employers unknowingly slip up, as it’s not done to put the employee at a disadvantage but it’s still illegal – therefore either the pay has to increase or the employee taken out of the salary sacrifice scheme. 

“Certain sectors can have specific issues that are more likely to cause a problem, for example in the retail and hospitality sectors with uniforms. If a uniform cost is met by the worker and the employee falls under NMW because of it then the employer could be penalised. In one case, a restaurant chain asked staff to wear black jeans or a skirt with a branded top and ended up having to repay an average of £50 to 2,630 employees.”

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