Last reviewed 16 March 2022

On the face of it, national minimum and living wage (NMW/NLW) seems like it should be straightforward. The Government sets the rate every year, it comes into force and that is what is paid. But, if that’s the case, how come so many employers get it wrong?

The Government has established the National Minimum Wage Naming Scheme, which aims to increase awareness of NMW/NLW and deter businesses from underpaying their workers. This scheme pulls together all of those businesses that have been identified as having underpaid NMW/NLW and names them, including their registered address, information on their business sector, how many employees they underpaid and the total arrears owed. Obviously, this sort of information can be incredibly brand damaging and has the potential for serious consequences for recruitment in the future.

Naming and shaming

The most recent “naming and shaming” list was published in December 2021, and was the 18th “round” of this exercise. It identified employers who had failed to pay NMW/NLW between 2014 and 2019. The employers named within it were fined a total of nearly £2 million. Underpayments totalled £1.2 million (average arrears per employer were £5986.25, and per worker were £1029.34). The total number of 11,895 workers were underpaid, and the largest offender was The Challenge Network (liquidated 26 May 2020, operating in social work activities without accommodation), which had total arrears of £154,682.33 owing to 3600 workers for the period between 18 June 2016 and 13 November 2017.

Common reasons for underpayment

Round 18 of naming and shaming set out the most common reasons for breaching NMW/NLW:

  • 37% deducted pay from workers’ wages

  • 29% failed to pay workers for working time

  • 16% failed to pay the correct rate to apprentices.

Deductions

Seventy six employers were called out for unlawfully deducting pay below NMW/NLW. Certain deductions can lawfully be made to an employee’s national minimum wage pay, such as deductions for income tax and national insurance contributions; recovery of accidental overpayment or pay advances; pension contributions; student loan repayments; trade union fees; and accommodation offsets.

However, some pay deductions and work-related expenses cannot reduce pay below the minimum wage, and this is what has caused issues for employers, as doing so can amount to an unlawful deduction from wages claim. This can lead to claims for underpayments over the previous two years. These include deductions made for:

  • tools

  • uniforms

  • travel costs (except commute to and from work)

  • training courses.

This means where an employee is, for example, required to purchase a uniform, their total pay minus the uniform cost cannot be below the NMW rate for their age.

A recent Employment Appeal Tribunal (EAT) case (Augustine v Data Cars Ltd) confirmed that expenses incurred in connection with employment should not cause an employee’s salary to fall below minimum wage. In this case, expenses included car insurance and car leasing payments, uniform, equipment and valeting costs.

Working time

We all know that employees should be paid for the hours that they work, but what about the grey areas? The travel between clients for care workers, time spent on sleep in shifts or trial shifts? These can cause confusion, which can in turn lead to underpayments and enforcement action.

When considering whether an employee should be paid for their time, it’s important to consider if the time is working time.

Working time is defined in the Working Time Regulations 1998 as:

Any period during which the worker is working, at their employer’s disposal and carrying out their activity or duties;

Any period during which they are receiving relevant training;

Any additional period designated as working time under a relevant agreement.

Travel time

Where travelling is an essential part of an employee’s job, for example, if they are a delivery driver or a travelling salesperson, this will be treated as working time for which they should be paid at least the minimum wage. The same is true for workers such as those in domiciliary care, who must travel from location to location, caring for their clients.

The time spent travelling from an employee’s home to their place of work (their commute) is not considered as working time, and employers do not need to provide pay, unless this is offered as a contractual entitlement (although this will be rare).

Sleep-in shifts

In the well known Supreme Court case of Tomlinson-Blake v Royal Mencap Society [2021] it was held that “sleep-in” carers are not entitled to receive the NMW/NLW for the hours they spend asleep and are thus not working, and only need to be paid when they are actually called upon to work. This ruling came as a huge relief to those in the care sector, who were faced with potentially huge arrears payments had the case been decided the other way.

Trial shifts

Pay for a trial shift is dependent upon whether the point of the trial is to test the individual’s ability for recruitment or if it provides value to the employer.

If an individual is required to work a whole shift or a series of shifts, then it is likely to be of value to the employer and therefore NMW/NLW will be due. Similarly, if the individual is not observed or given any guidance throughout the duration of the trial shift, it is more likely they will be providing work, for which they should be given at least the NMW/NLW for.

For example, if a chef is asked to prepare some taster dishes under direct observation of the employer, this would likely be regarded as a genuine trial so they will not be entitled to pay. However, if they are asked to help out with kitchen service during the peak dinner rush, and left to chop vegetables or complete other tasks, this would likely be seen as providing value to the employer and not a genuine trial, so NMW/NLW would be due.

Apprentices

Apprentices have their own special “band” of NMW payments, which is one of the lower hourly payments. This is in reflection of the training focus of their role and the fact they are still learning to properly do the job. It also acts to incentivise employers to take them on.

For 2022/2023, the apprentice rate will be £4.81, up from £4.30 per hour in 2020/2021. This rate should only be paid to first-year apprentices and those under 19. As such, employers have a number of significant anniversaries to watch out for, including:

  • moving from year one to year two (if 19 and over)

  • their 19th birthday (if they have completed year one)

  • finishing their apprenticeship.

All of the above means a change from the apprentice rate to the appropriate NMW/NLW for their age, from the next ‘”pay period” after the anniversary.

The other issue that employers face is apprentices who are not, in fact, apprentices at all. Just like status as a worker/self-employed, the status of an apprentice is also important. If they are not on a registered apprenticeship, training towards a skill or qualification or on a fixed term contract, then they may not be an apprentice at all and should therefore be paid the rate appropriate for their age.

Consequences

The consequences of failing to pay NMW/NLW can be costly. Not only can an employer guilty of a breach be fined, at a rate of 200% of arrears (reduced to 100% if paid within 14 days and subject to a maximum of £20,000 per unpaid worker), but they must also pay the arrears, which are calculated at the current rate of NMW/NLW (which can significantly increase the money owed if it was owed under a different NMW rate). These must be paid within 28 days. There is also the risk of criminal proceedings for the most serious breaches.

Takeaway points

Not knowing the law is not a reason not to pay NMW/NLW. Employers must therefore get familiar with what the rules are and engage external expertise if they are unsure. Being armed with the proper information, however, makes it much less likely that a breach of NMW/NLW will occur.