For pay periods starting on or after Saturday 1st April 2023, the National Living Wage and Nation Minimum Wage are rising significantly.
For many receiving minimum pay amounts this sees a 9.7% pay increase being applied at some point over the month of April.
For those aged 21 and 22 the increase is more as the gap between the NMW rate for 21 year olds gets closer to the NLW rate. The end game is heading towards the National Living Wage starting eventually at 21.
The UK government are promoting awareness of the new rates to employees and suggesting that they check their pay.
Isn’t it just a payroll problem?
A critical aspect of complying with NMW law is for accurate records of time worked. Some employers expect employees and workers to undertake certain work activities such as training in their own time without pay.
Others set clothing or uniform policies setting standards of work attire to undertake work, but without provision of required uniform or clothing allowances.
Other employers may operate salary sacrifice arrangements in the provision of non-cash benefits in kind, not realising that the sacrifice reduces pay for NMW assessment purposes.
Some employers do not realise that the premium elements of overtime, the double, half or a third do not count as earnings for NMW purposes.
What about deductions?
There are even some that deduct amounts from employees wages that may be considered a deduction for the benefit of the employer. This would include the HM Court Service allowed £1 fee that an employer could apply for operating an Attachment or Arrestment of earnings.
Of course, genuine deductions that are not for the employers benefit or control, paid across to third parties and pension contributions are fine.
NMW is a cross business challenge
Of course, then there may be practices where local managers require their workers to stay longer than paid for work-time!
All of these complexities can potentially lead to an employer committing a breach, whether deliberate or not, of National Minimum Wage law which can be treated under criminal law.
Review maternity cases
The rise in NMW is indicated by HMRC as constituting a pay rise under the Alabaster ruling. This may effect current and historic Statutory Maternity Payments with back payments of SMP due. If the 1st April change falls anywhere in the period from the start point if the Average Weekly Earnings calculation (8 weeks before the 15 week QD) through to the end of the maternity leave – then the Alabaster ruling applies.
Review salary sacrifice arrangement and flex bens
Many employers operate smart salary exchange arrangements which benefit both employees and employers. Whether pensions, childcare vouchers, bikes or other non-cash benefits, all salary sacrifice arrangements reduce NMW pay.
With this significant rise in NMW rates, some may find that the cushion of pay available to sacrifice has now shrunk and there is insufficient excess earnings to be able to sacrifice, employers need to verify and potentially take mitigating urgent action. The challenge for some is that their arrangement may be mid flight and either needs to be capped or stopped. Flipping to an alternate deduction arrangement may not work as that could be viewed as a deduction for the benefit of the employer resulting g in NMW pay still being reduced resulting in a continued breach.
Reporting breaches is always taken seriously
Employees who have been underpaid can report their employer to the HMRC NMW audit service anonymously. Reports are taken seriously and are investigated at some point by the HMRC NMW audit team.
NMW audits can feel particularly invasive and take significant time and disruption to an employer. Orders to pay underpayment to current and former employees and workers can be applied with risks of fines and penalties along with being named and shamed.
Act now, review and take action to reduce your NMW breach risks.
Payroll change resources for April 2023
For more resources on the payroll changes for the 2023/2024 tax year see: