The perils and pitfalls of the national minimum wage
This article was first published by People Management.
At the end of last year Primark and Sports Direct were two of the 260 employers that were named and shamed by the government for failing to pay their staff the national minimum wage (NMW). This latest group of organisations had failed to pay 16,000 workers a total of £1.7m.
The most common reasons cited for underpaying staff in this instance were failing to pay workers when they were travelling between jobs, not paying overtime and deducting money from staff wages for uniforms. These issues highlight the two main problems that employers can face when they are attempting to meet their NMW obligations.
What counts as pay?
The first issue for employers to consider is to assess what pay and benefits count towards the NMW. There are four categories that can be considered as pay for the purposes of the NMW:
- the gross amount of basic salary;
- bonus, commission and performance incentive payments;
- piecework payments; and
- accommodation allowance.
The accommodation allowance is the one non-cash benefit that can be taken into account for the purposes of the NMW. However, even this allowance has to be considered with caution as, regardless of the notional value of the accommodation provided, the allowance that can be added to the worker’s basic salary is not particularly high. From April 2018, if the worker is provided with free accommodation, the allowance will be a daily rate of £7 or a weekly rate of £49.
As the recent cases show, overtime is also an area that can cause organisations problems. The premium paid for overtime work cannot be taken into account for NMW purposes, so if a worker was normally paid £6.50 per hour but is paid £8.50 for overtime, only the basic rate of £6.50 will count. Employers therefore cannot use overtime payments to top up normal hourly rates that fall below the NMW.
Another area that can cause issues, as Primark found, is in relation to certain deductions that an employer makes from a worker’s salary. Deductions made from a worker’s salary that are connected to their employment, such as costs of tools or uniforms, or for the business’s benefit, are unlawful if they reduce the overall level of pay below the NMW. Primark, and Monsoon in 2015, were found to have failed to pay the NMW because of their practice of requiring staff to wear particular clothes and either refusing to pay for the clothing or deducting the cost of it from the worker’s salary.
What counts as working time?
Once the applicable salary payments are taken into account, organisations then have to assess the number of hours worked by the worker. For workers on salaried hours, who are paid for a fixed number of hours’ work a year and are paid in equal weekly or monthly instalments, the following will be considered working time for NMW purposes:
- actual work;
- standby or on-call time where the worker is required to be available at or near a place of work;
- travelling time on business during normal working hours, although travelling between home and work will not count;
- training during normal working hours either at work or elsewhere; and
- absence when the worker is paid their normal pay; ie holiday and sick leave.
Particular difficulties have arisen recently and are likely to continue to be an issue in relation to whether on-call workers are not only available for work but are actually working. In some cases, the worker may be considered to be working and therefore entitled to the NMW while they are relaxing at home, or even sleeping.
Enforcing the NMW is an increasing priority for the government and, as the recent headlines show, getting this issue wrong can result in significant reputational damage together with hefty fines and back pay.
However, although this can be a complicated issue for employers, ensuring that pay and hours are kept under review should help to reduce the risk of mistakes being made.
Categorised in: News