Employers urged to pay attention to National Living Wage

In anticipation of the biggest increase in the national living wage since its introduction in April 2016, the government continued its crusade to make work pay by naming and disgracing more than 200 employers who did not pay minimum wage. Employment Lawyer Lucy Flynn examines the situation from a legal perspective and discusses the repercussions that named employers may face.

The National Minimum Wage Act 1998 provided for the creation of a Low Pay Commission, which set Britain’s first-ever National Minimum Wage (NMW) in April 1999, at £3.60 an hour for workers over 22 years old. The NMW covered approximately 1.2 million adults, which had an average salary increase of 10% and despite fears that the NMW would cost jobs, this did not turn out to be the case.

In April 2016, after many years of lobbying by various organizations, the government introduced a new mandatory National Living Wage (NLW) for workers aged 25 and over and it now applies to all workers in over 23 years old. Originally set at £7.20, the NLW was up 50p from the NMW at that time.

Minimum wage hourly rates have increased every year and will increase as follows in April 2022:-

• National Living Wage for over 23s: £8.91 to £9.50
• National minimum wage for people aged 21 to 22: £8.36 to £9.18
• National minimum wage for 18 to 20 year olds: £6.56 to £6.83
• National minimum wage for under 18s: £4.62 to £4.81
• The Apprentice rate: from £4.30 to £4.81

In addition, the charity Living Wage Foundation has set up a voluntary “Real Living Wage”, and approximately 9,000 employers have signed up. The recommended hourly rate for the Real Living Wage is currently £11.05 in London and £9.90 elsewhere, and this is a salary intended to cover day-to-day needs and meet the real cost of living.

Prior to the introduction of the minimum wage, the lowest earners consistently saw the slowest growth in their wages and its introduction would have reversed this trend. In addition, the government has been tough in taking enforcement action against employers who do not pay their staff properly. Between 2014 and 2019, investigations by HM Revenue and Customs resulted in employers being ordered to pay fines of almost £2million and refund the wages of around 12,000 workers who had been under -paid. Additionally, and in an effort to send a clear message that payment of the minimum wage should not be negotiable, on December 9, 2021, over 200 employers ranging from sole traders to multinational organizations were publicly named for not having properly paid their lowest paid staff. .

Deductions from workers’ wages for items such as food, uniforms, work equipment and wage sacrifice plans accounted for more than a third of reported cases of non-payment of minimum wage, followed closely by unpaid working time for items such as “rounding up” working hours, overtime, taking mandatory training, doing probationary periods or traveling between sites.

The calculation of a worker’s wage for minimum wage purposes must be carried out in a particular way. Some elements of compensation do not count for minimum wage purposes, such as; –

• tips, gratuities, service charge and cover charge
• overtime and shift bonuses
• allowances
• payments by an employer to reimburse a worker’s expenses
• benefits in kind
• loans
• salary advances
• pension payments
• lump sums at retirement
• severance
• rewards under staff suggestion programs
• stocks and stock options

The starting point for calculating whether the national minimum wage is paid is the worker’s gross wage before any deductions. Including a salary item that doesn’t count, like those listed above, can give the impression that minimum wage is being paid when in fact it is not.

Employers who do not pay the minimum wage face; –

• A reimbursement order for what they owe the staff
• significant financial penalties of up to 200% of what was due
• public denunciation and humiliation by HMRC

The government is of the view that there is no excuse for not paying the minimum wage and has published, and regularly updates, its guidelines for employers on wages. Additionally, in December 2021, it released guidance on steps employers should take to ensure workers are paid properly, which addresses everyday scenarios and real-world examples.

Michael A. Bynum