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Keith Senior, of Jacobs Allen in Bury St Edmunds, warns that innocent errors can lead to companies breaking the law

All too often, employers believe that provided they are paying at least the National Minimum Wage (NMW) to staff, they are fully compliant and that they can face no action against them by HMRC. However, that’s not the whole story.

Getting things wrong by innocent error can lead to adverse publicity for the employer and hence reputational damage.

HMRC’s approach to targeted enforcement has continued to evolve, moving from education to technical enquiry and enforcement, and they are now charging significant penalties as a result of employers breaching the regulations, which is all too easy to do. Routine inspections from risk profiling employers and following up on complaints are sources for enquiries as well as targeting particular sectors, currently it seems on hotels. It is crucial to react quickly if HMRC makes enquiries.

Keith Senior, of Jacobs Allen
Keith Senior, of Jacobs Allen

There are five key areas to look at when assessing NMW compliance:

  • The type of worker determines how the calculations are done for time based work, salaries, productivity based work, or unmeasured work.
  • The pay reference period is critical to ensure compliance each period.
  • All working time has to be captured in the calculation of pay and there needs to be supporting time records.
  • Not all pay counts towards NMW. Enhancement elements for example for working bank holidays is not eligible pay.
  • Allowable deductions can also be complex, as deductions for uniforms or salary sacrifice arrangements likely do not count towards NMW.

Legislation is complex and although HMRC has issued updated guidance, you do need to have an understanding of certain issues to know that you are identifying potential problem areas.


A common problem is not identifying the worker type correctly, assuming that they are salaried but under the NMW legislation they are not, so that average pay for hours under-worked can’t be set off against over-work periods. Also, where employees are required to come in 15 minutes early on a shift to set up, that counts towards their time that could result in underpayment per hour. Salary sacrifice of an amount of salary in exchange for say an employer pension payment needs the NMW calculation done after the sacrifice of the salary element foregone.

Even where employers try to help employees, for example by providing a Christmas Savings Club, deductions made for this saving are taken into account in looking at the reduced pay the employee gets under the NMW legislation, illogical though that seems.

If you are paying close to NMW or think that there are changes to your basic pay arrangements, you should do a detailed review of your obligations to ensure that you do not fall foul of the legislation.

Ask your adviser to help you ensure compliance on this difficult area.

-- Keith Senior is a director at Jacobs Allen Chartered Accountants and Chartered Tax Advisors.

Contact Keith on 01284 704260