Global Employer Services Newsletter February 2020

National minimum wage

As part of an overhaul aimed to reduce the burden of the legislation on businesses, there have been big announcements recently for National Minimum Wage (NMW) following the review of the naming/shaming policy. As well as changes to the naming scheme the announcement included changes to salaried work, salary sacrifice and deductions from pay.

BEIS naming and shaming

The policy of naming and shaming was quietly suspended towards the end of 2018, following a number of high profile complaints from businesses that had inadvertently fallen foul of the complex rules.

The reformed regulations will now reinstate the naming of businesses that fail to pay their workers the NMW with the following changes,

  • Increase the arrears threshold over which employers will be considered from naming from over GBP 100 to over GBP 50;
  • Provide more information about reasons for breaches;
  • Publish an educational bulletin for employers, highlighting common reasons for underpayment; and
  • Name employers more frequently than previously.

This new approach will mean that some businesses falling foul of the rules by minimal sums will not be named, provided they correct any errors. It will also mean some underpayments arising from certain salary sacrifice arrangements and deductions will not be subject to naming.

Salary sacrifice and deductions

A direction has been issued relating to cases where NMW underpayments have arisen as a consequence of certain employer deductions from pay. This direction addresses some specific instances where the design of a salary sacrifice or deduction scheme is associated with NMW underpayments, despite delivering benefits to participating workers and the worker in practical terms suffers little or no detriment.

The intention of the direction is to ensure that historical liabilities are repaid to workers, whilst providing employers with an opportunity to ensure their practices going forward are compliant with the law. The circumstances in which the direction will apply are tightly limited to ensure the continued protection of workers.

The direction has broadly the following effect. If, following an HMRC investigation, the only reason minimum wage was underpaid was because the employer made a deduction from a worker’s pay/ enrolled them in a salary sacrifice scheme with the worker’s consent and the worker has received the correct good/benefit as a result of that deduction (e.g. childcare vouchers, savings club, season ticket), the employer will not face a penalty (or be named).

This direction does not apply to deductions for items in connection with employment (e.g. uniform), expenses or accommodation.

Salaried work

Finally, changes to regulations for salaried hours work will widen the range of pay arrangements available to businesses where workers receive an annual salary in equal instalments for a set number of contracted hours.

These changes include:

  • Permitting additional payment cycles for salaried workers, including fortnightly and 4-weekly cycles, providing choice and flexibility to employers and workers
  • Allowing employers to choose the ‘calculation year’ fit for their workers, helping them to better monitor the hours worked by salaried workers and identify potential underpayment of wages
  • Ensuring salaried workers can receive premium pay, for example for working on Bank Holidays, without losing their entitlement to equal and regular instalments in pay.

The changes will provide more flexibility in how salaried workers are paid without reducing protections for workers. Although businesses employing salaried workers are now less likely to be caught out by the NMW legislation due to the differences in their hours from one month to the next, there is still complex calculations that will be required to ensure NMW is being paid.

These changes are expected to come into force on 6 April 2020, subject to normal parliamentary approvals.

For information can be found in NMW enforcement policy document.

Stephanie Wilson