New minimum wage rates came into effect on 1 April 2022 and your Payroll processes should now be taking account of this. There is, however, a lot more to being minimum wage compliant than simply paying a higher hourly rate. Here are two things to watch out for if you want to avoid an unexpected penalty from HMRC.
HMRC Minimum wage compliance checks
As part of its compliance procedure, HMRC carries out checks on employers. They will visit business premises to inspect records, and also to engage directly with workers to check they’re receiving the wage that’s legally due to them.
The visits are not random. HMRC will select employers for either of two reasons:
• Research has highlighted potential issues within a particular sector or local area, or
• There has been a complaint that employees are being underpaid.
HMRC is not obliged to tell employers why their records are being checked, nor divulge any information it has received.
From an employer perspective, compliance checks will undoubtedly create additional work and potentially damage employee relations.
Employers may be liable for arrears of pay or face penalties if mistakes have been made. It’s worth noting that wage arrears will be payable at the rate in force at the time they are discovered – not the rate when the error was made – which could represent a significant increase.
If an employer is found to have deliberately broken the law, sanctions can include criminal prosecution, although this is rare. There is also the now well-established practice of public ‘naming’ by the Department for Business, Energy and Industrial Strategy.
The risk zone is wider
It used to be the case that minimum wage legislation mainly impacted lower-paid employees but the scope has widened considerably. As the minimum wage rate for those aged 23 and over now stands at £9.50 per hour, the number of employees with pay around this level will be significantly higher. We advise monitoring the position even for employees with pay above the minimum, to ensure there’s nothing that would tip their pay below the required threshold.
If we are your Payroll services provider, we will of course ensure that your employees are receiving the correct wages.
Deductions from wages are another area to watch out for. It is permissible to make a deduction for accommodation that takes pay below the minimum wage but the maximum is determined by the accommodation offset. Other deductions – even if agreed with workers and of benefit to them – are illegal if they reduce pay to below the minimum wage. Salary sacrifice arrangements are another potential risk area: the figure after the sacrifice is what counts when checking against the minimum wage.
The interaction of the Covid-19 furlough scheme, in particular flexible furlough, will also be key in HMRC compliance activity for some years to come.
How we can help
If you have any questions regarding the minimum wage, payroll, employment law or HR matters, please speak to your RfM advisor who will be happy to help or refer you to the right team. Enquire online or contact one of our offices.