Common mistakes with national minimum wage
No matter how large an organisation, mistakes around national minimum wage can sometimes occur. These mistakes often come with a hefty fine and publicity that most businesses may have preferred to go without.
Keith Graham Chartered Accountants have over 20 years' experience and a wealth of knowledge when it comes to national minimum wage and common mistakes and misconceptions on the topic. For this reason, we have compiled a simple guide to national minimum wage for employers highlighting the common mistakes, do's and don'ts.
We will begin by outlining the errors we see employers make the most often. From the incredibly famous court cases against some major brands including Wagamama and Sports Direct, to smaller less well-known businesses that are not meeting the National Minimum Wage requirements.
Whilst most cases appear to be a case of misunderstanding or confusion within a company, there are also the instances that are a little more malicious in nature.
Cost deductions can be a common downfall for employers when it comes to meeting the National Minimum Wage requirements. All too often employers make these deductions (including tools, uniform, or travel) after they have calculated National Minimum Wage pay for their employees. If your business is planning on making these deductions, you must do so before calculating your staff's pay.
We also see businesses facing confusion around the national minimum wage requirements when it comes to apprenticeships. Firstly, in order for someone to count as an apprentice, they must have an official training contract in place. If they do not and you are paying them an apprentice wage (£3.90 per hour) then you are not complying with National Minimum Wage guidelines. Secondly, employers are unable to pay someone an apprentice wage once they turn 19, unless they are 19 (or over) for the first year of their apprenticeship.
One of the most common mistakes we see when it comes to national minimum wage is the failure to understand what constitutes a pay reference period. This, put simply, is set by how often an employee is paid (e.g. weekly, monthly). This pay reference period, however, can be no longer than 31 days. The mistake we often see here is when the conditions for an employee's 'salaried hours work' are longer than predicted and if the employer is not with the scope of salaried hours work there will be an additional pay reference period required. When such a situation arises, all employers must ensure they meet the national minimum wage conditions for each pay period in isolation.
In businesses that often see employees making additional money from tips or other areas of pay associated with shift work premiums, we sometimes see employers counting this money towards a member of staff's National Minimum Wage. This can cause huge controversy especially within sectors like hospitality.
The last of the most common mistakes we see when it comes to calculating national minimum wage is employers missing employees' birthdays. This is hugely important when turning 18, 21 or 25 as this is when national minimum wage brackets change.
How to avoid National Minimum Wage mistakes
When deciding to make pay deductions for anything from tools to uniform for your staff, you must ensure you do so prior to calculating their national minimum wage. Failure to do so can put you in breach of the National Minimum Wage guidelines.
If your business employs apprentices, you must ensure they have legitimate contracts in place, dictating that they are directly categorised as an apprentice and highlighting the exact amount of time they will be regarded as one.
In order to avoid making mistakes with pay references and salaried hours, try keeping time sheets for all employees. Whether you choose to track these manually or via a time tracking software, this can be a simple way to accurately record your staff's working hours and ensure that their salaried and predicted hours equate as they should.
All tips or additional shift premiums should be excluded when it comes to calculating national minimum wage for your employees. If you are confused with regards to what counts within shift premiums, then you can find more information available here.
If you have, or are concerned you could, forget an employee's birthday (and consequently their change in National Minimum Wage) then being proactive and keeping tight records on employee data is a great way to stay on top of this. Most payroll systems allow you to link your staff's birthday meaning that their pay will automatically update when a birthday comes around.
How we can help with National Minimum Wage
The team at Keith Graham Chartered Accountants have years of experience in dealing with National Minimum Wage and Payroll for businesses of all sizes. If you require some support to ensure you don't become a business making one or more of these common mistakes with National Minimum Wage then please do not hesitate to get in touch to see how we can support you.