National minimum wage: Getting under the surface

4 October 2024

The National Minimum Wage (NMW) has seen significant increases since its introduction in 1999 including the introduction of the National Living Wage in 2016 to workers aged 25 and over and lowered to those aged 23 and over in April 2021.

With further changes proposed to lower the age entitlement to the national living wage to 21 and under and factor in the cost of living to future minimum wage rates, these increases are putting even more pressure on businesses to manage every tightening purse strings and budgets.

Given the increasing pressures on businesses due to rises in the National Minimum Wage and proposed changes to the National Living Wage, being savvy and reviewing your NMW compliance checks and processes can:

Reduce the risk of making inadvertent mistakes.
Provide assurance that compliance obligations are being met.
Avoid in-depth and lengthy HMRC investigation that could result in financial cost and reputational damage.
Help you establish an attractive and well thought out reward strategy, with a compliant foundation, to recruit and retain the best talent.

To achieve this, employers should carefully consider the following areas:

Deductions from pay

Costs incurred by employees to provide work related equipment, (e,g., tools, clothing items, car wash for a co car) that are not reimbursed will reduce pay. Reviewing internal policies can reduce the risk of inadvertent breaches occurring.

Salaried workers

Each salaried worker has a different calculation year end when checking NMW compliance – aligning the year end across all salaried workers reduces resource and admin time.

Mergers and acquisitions

NMW risks can be inherited from TUPE’d employees on acquisition. Pro-active due diligence can identify potential risk prior to sealing the deal.

Salary Sacrifice

Participation in sacrifice schemes reduces pay for NMW purposes but implemented correctly can provide tax efficiencies.

Payroll data

Not all pay elements count towards NMW pay (enhanced pay rates, allowances, BIKs) – reviewing your pay components and deductions can assure they are treated correctly for NMW purposes.

Working time and time records

NMW is payable for all time worked, including pre- and post-shift time (logging on to systems, security checks and hygiene procedures – relaying accurate time data to payroll can avoid errors.