The discussion highlighted critical issues from enforcement and penalties to the disproportionate impact on Small and Medium-sized Enterprises (SMEs).
Here are the key takeaways and actionable next steps for businesses as they prepare for these changes.
HMRC plans to publish a new "naming list" of businesses failing to comply with NMW increases. Last year, 524 employers were publicly named for underpaying a total of £16 million to 172,000 workers, resulting in an average underpayment of £93 per worker.
Annual HMRC reports reveal a persistent issue with companies failing to meet NMW obligations due to the complexities and technicalities of managing compliance across the workforce (e.g. worker categorisation, excess hours for salaried workers, deductions from pay, the definition of working time).
Notably, it was suggested that a minimum penalty be introduced, equivalent to the board of directors’ total remuneration, with at least 50% borne personally by directors. Whilst an idea and not yet legislated, this aims to hold leadership accountable, particularly in larger firms.
The rise in lower-end wages may shrink pay gaps with higher-skilled roles, a phenomenon termed "wage compression", with businesses unable to increase pay for other grades/roles above NMW by as much as the required increases set out by the NMW regulations.
This could distort labour markets, discouraging workers from pursuing advanced skills or education and creating retention challenges for businesses. Businesses need to therefore think how to make reward attractive at all levels by considering cash and non-cash incentives.
To address a fragmented employment rights system, the government will introduce a Fair Work Agency. This centralised body will consolidate enforcement functions, aiming to simplify compliance for businesses and enhance workers’ rights protection, while optimising public spending.
The Employment Rights Bill will be the first phase of delivering the Fair Work Agency. The government will set out further details including timescales for implementation in due course.
The Bill covers the following areas:
Many of these areas were already covered by existing enforcement agencies. The Bill will therefore look to combine the Employment Agency Standards Inspectorate (which deals with employment agencies), HMRC’s National Minimum Wage Enforcement Team, and the Gangmasters and Labour Abuse Authority (which covers modern slavery).
The most significant change for employers is the enforcement of holiday pay rights. This area is currently not enforced by any state agency and is known for its complexity, which may lead to mistakes by employers.
The NMW affects significant numbers of workers regionally: approximately 150,000 in Wales, 200,000 in Scotland, and 160,000 in Northern Ireland. Businesses in these locations should therefore anticipate heightened scrutiny and worker expectations.
It is recommended that businesses paying at or close to NMW (this might now include those earning close to £30,000 per year) take time to carefully review their controls and approach, making sure payroll, HR, operations, legal, IT and “on the ground” management are involved, given the variety of interactions NMW has across working practices and pay.
Questions remain surrounding how the Fair Work Agency will interact with HMRC and operationalise broader enforcement. Further clarity is expected in follow-up correspondence to Lord Fox.
The NMW increase presents both challenges and opportunities for businesses. While enforcement tightens and costs rise, proactive planning can mitigate risks and position companies as responsible employers. With the Fair Work Agency on the horizon and potential penalties looming, businesses must act decisively to align with evolving regulations. Now is the time to get ahead of the curve.
To learn more about the NMW and identify potential gaps in your compliance processes, complete our questionnaire. You will receive a high-level risk report and risk score, as well as a free initial consultation with one of our specialists. We will highlight any necessary remedial actions to ensure that your organisation meets its compliance obligations.
If you would like to discuss your NMW challenges or explore cost-saving options, please do get in touch.
When assessing compliance with the National Minimum Wage (NMW) and National Living Wage (NLW) for salaried workers, it is important to note that simply dividing an annual salary by 12 months (if paid in equal monthly instalments) and comparing this to the basic contractual hours is not sufficient.
Below, we explore the benefits for employees and employers of salary sacrifice and the areas employers need to consider ahead of implementing a salary sacrifice arrangement.
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