Why we are worried about NMW audits and how we can help

We know from our recent surveys and forum sessions that many organisations across a range of sectors are planning to set their entry rates at NLW and the median is ￡12.29, just 8p or 0.65% above statutory minimum – simply not enough headroom for any salary sacrifice.

We have shared our concerns about NMW compliance for these populations – there tends to be pretty good awareness of the interaction of salary sacrifice and NMW but not always of the wider issues, especially those impacting on the definition of working hours.

Our client engagements on NMW have shown that the issues are much broader, and that HMRC are particularly interested in salaried populations.

You may have seen a recent article in Personnel Today suggesting that UK employees are working 215.8 hours of overtime every year, with more than two in five (42%) doing so for free because they feel they need to for future promotions and pay rises.

And it is not just about those close to NMW. Let’s look at your Finance Analyst, in from 8am to 6pm, grabbing a sandwich for half an hour. In fact as a former accountant, that sounds like a light day to me with much longer hours at month end, quarter end and, heaven forbid, year end and budget time. They are contracted 9am to 5pm with an hour for lunch (unpaid) so a 35 hour week. But as you can see, they are working an extra 2.5 hours a day and no one would expect to pay that as overtime.? That extra 12.5 hours is more than 35% extra. They are a prudent soul and so salary sacrifice 8% into their pension but don’t do any other salary sacrifice arrangements (let’s keep it simple). We can’t count their annual bonus for NMW purposes.

?In this example, with an NLW of ￡12.21, someone on ￡32,000 pa would actually be below NLW – remember we are using post salary sacrifice pay, and actual working time of 47.5 hours a week. And that is a pretty conservative working estimate.

The Office for National Statistics (ONS) tells us that median gross annual earnings for full time employees are sitting at ￡37,430, so it just not the low paid. Now it is not quite as simple as that, as they will have holiday (so not working extra hours those weeks) but they will have year-end (far more hours) and so with more hours overall, those on higher salaries are at risk.

?NMW audits are not new - I came back from maternity leave in 2012 to find an HMRC NMW audit was underway - and back then NMW was ￡6.08, only half of the new rate for those 21+ from April. The rate has not only rocketed in the intervening years but more resources have been given to HMRC to not only investigate whistle blows but to proactively check companies for minimum wage breaches. In addition, the number of trip hazards has increased – back in 2012 we were not concerned about Head office people working through lunch, dress codes, multiple salary sacrifice arrangements, but we are now.

We have seen regular ‘name and shame’ lists from HMRC, with some big-name employers getting tripped up on technical breaches and named in the press. And no slack given for those in not-for-profit.

And so our Senior Reward Analyst, Steph, and I have put together a 2-hour session to run with client teams to step through a series of questions to understand risks specific to them.?

That is just ￡1200 (plus VAT, of course, HMRC need their bit too!)

?We find that a group with HRBPs, Operators and Payroll as well as Reward is very beneficial as we can consider the reality and not just the policy (as HMRC will, and we have seen issues arise from that before) and also what checks are being done and what assumptions being made about data.

The outcome is a list of areas to investigate and actions to take – sometimes the client will take that themselves and sometimes ask for our help now we are in the position to scope that work.

If you would like to book us in to do that with you, please get in touch on [email protected] or directly with me on [email protected]

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