ICAEW.com works better with JavaScript enabled.

TAX NEWS

National Minimum Wage rules: more complicated than you think

Article

Published: 11 Jan 2022 Update History

A number of high-profile employers have been caught out by the National Minimum Wage rules. ICAEW has resources to help members keep their employers or clients compliant.

BEIS’s National Minimum Wage (NMW) naming and shaming list currently features 191 companies that have underpaid workers. This includes large, recognisable brands. Not all of these are intentional breaches of the rules, however – many are unaware that they are non-compliant.

In the latest government figures around National Minimum Wage non-compliance, 47% of those caught out wrongly deducted pay from workers’ wages, for expenses such as uniforms; 30% failed to pay workers for all the time they had worked, such as for overtime; and 19% paid the incorrect apprenticeship rate.

ICAEW addressed some of the common misconceptions around the National Minimum Wage in a recent webinar. This is freely available to view, along with a number of frequently asked questions that were addressed by ICAEW’s Tax Faculty.

Kate Upcraft of Kate Upcraft Consultancy explained some of the common misconceptions that organisations are making around the NMW.

It is not tax legislation

BEIS looks after NMW legislation, while HMRC looks after its enforcement. Because it’s not covered by the Taxes Management Act, however, there is no authority for a flexible, behaviour-based approach to enforcement and penalties. As a result, the rules are applied much more rigidly – though this has been relaxed slightly in recent years.

NMW applies to all worker types

The National Minimum Wage is not about low-paid workers – it applies to pretty much everyone in the organisation, with some exceptions (covered in the webinar).

Upcraft said: “If the most senior person in the organisation said for their final salary: ‘Can I please sacrifice all pay? I don’t want to be paid. I’ll just sacrifice everything into my pension,’ that wouldn’t be acceptable because they have to be paid National Minimum Wage for the hours that are worked. Sometimes this escapes people’s understanding … everybody is bound by the legislation.”

It covers more than just salary

“It’s even very complicated to determine what pay elements count towards the NMW. For example, premium payments, such as unsocial hours payments, have to be ignored and the definition of bonuses is tightly drawn, so it must be a bonus, not an allowance,” said Upcraft. “They’re very broad descriptions, so fitting your pay element structure and setting parameters as to whether a pay element is in or out is obviously key.”

The next phase of increases will have a significant impact

We will see further increases to NMW in 22/23 and it will bring a number of challenges for organisations, said Upcraft. “Particularly around salary sacrifice … we will have another cohort of people who cannot participate in salary sacrifice because it will drop them below National Minimum Wage, which is particularly problematic next April because a lot more employers will want to use salary sacrifice to mitigate the rise in employer national insurance in April.”

For full details on how to apply the National Minimum Wage, the misconceptions and challenges, watch the webinar, view the slides and Q&As.

Tax Faculty

This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.

More support on tax

ICAEW's Tax Faculty provides technical guidance and practical support on tax practice and policy. You can sign up to the Tax Faculty's free enewsletter (TAXwire) which provides weekly updates on developments in tax.

Sign up for TAXwireJoin the Tax Faculty

More from the Tax Faculty

Latest news
Making tax digital image
TAXwire

Stay up to date with the latest developments in tax by signing up to the Tax Faculty's weekly e-newsletter

Practical guidance
Cover
TAXline

Comprehensive support for Tax practitioners each month from the Tax Faculty and expert contributors.

Technical support
Tax Faculty image
Webinars

Expert advice from the Tax Faculty's technical managers on all the developments in tax policy and practice.

Open AddCPD icon

Add Verified CPD Activity

Introducing AddCPD, a new way to record your CPD activities!

Log in to start using the AddCPD tool. Available only to ICAEW members.

Add this page to your CPD activity

Step 1 of 3
Download recorded
Download not recorded

Please download the related document if you wish to add this activity to your record

What time are you claiming for this activity?
Mandatory fields

Add this page to your CPD activity

Step 2 of 3
Mandatory field

Add activity to my record

Step 3 of 3
Mandatory field

Activity added

An error has occurred
Please try again

If the problem persists please contact our helpline on +44 (0)1908 248 250