Retail giants such as Argos, Marks and Spencer, Lloyds Pharmacy and W H Smith have recently been called out by the Government for failing to meet minimum pay rules. To avoid a similar ‘naming and shaming’, employers must ensure they review their practices and pay workers what they’re owed.
Reputational damage is the most immediate, and potentially long-lasting, consequence of flouting wage rules. However, it also carries financial penalties that can be just as damaging.
Hefty fines from HMRC of up to 200 percent of arrears (capped at £20,000 per worker), as well as paying back arrears to individuals, can have a significant impact on a business’ financial position.
Keeping on the right side of the law
The employers named in Government’s list underpaid workers in three ways:
39 percent wrongly deducted pay from workers’ wages
39 percent failed to pay workers for all the time they had worked, including overtime
21 percent paid the incorrect apprenticeship rate
To avoid making these mistakes and facing the consequences, employers must check that they are paying their staff the correct and current rates. This includes staying aware of any annual rises and rate increases due to certain trigger points, such as birthdays.
Rules for apprentices
Employers might not know that there is a rule regarding an apprentice's age – specifically those who are 19 and older or who are turning 19. The apprentice rate can only be paid for the full term of the apprenticeship if the person will be under the age of 19 for its entirety.
If not, the apprentice rate can only be paid for the first year, or must increase to the correct rate on their 19th birthday.
Record and review
As well as ensuring compliance, keeping accurate records of pay, hours and deductions is vital to withstanding the scrutiny of an HMRC investigation.
Regularly reviewing employment contracts is also important. Some businesses may have a contract template that they have used for years, but unless updated periodically, it could no longer be compliant.
Employers should also keep in mind that business practices often change over time. Contracts and policies may say one thing, but that doesn’t mean the company is following them.
This can lead to issues when connecting what a worker’s employment contract says, what the working arrangements are, and what they are being paid in practice.
It’s also essential to ensure that hourly rates are being calculated correctly, as failing to do so can cause employers to accidentally break the law.
Being fully informed about current minimum wage regulations, and any changes on the horizon, can help employers to ensure they don’t find themselves being named and shamed in future.
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David is the lead employment partner for the firm’s education clients and provides sector specialist advice to universities and colleges.