Businesses have fallen foul of regulations around the National Minimum Wage (NMW) and the National Living Wage (NLW), with bakers telling this magazine they have been ‘devastated’ after being ‘named and shamed’ for underpaying their staff.

Breaching the regulations brings with it the risk of financial penalties and prosecution. But now it also entails the risk of reputational damage, with the Department for Business, Energy and Industrial Strategy publicly identifying employers found to have underpaid their staff. British Baker’s report shows that businesses have found themselves in this position inadvertently, as a consequence of some real pitfalls that all employers need to be aware of.

The NMW applies to workers aged from 16 to 24 and the NLW to workers aged 25 and over. There are five different rates of pay, dependent on age, and if you fail to adjust an employee’s pay following a birthday or on completion of the first year of an apprenticeship, you could be penalised. The rates are regularly updated so it is also important to keep track of the current ones.

Another potential pitfall is deductions from pay. There are very limited circumstances in which it is permissible to make deductions that take an employee’s pay below the NMW or NLW, including: tax or National Insurance; making up for a shortfall in a retail business; repayment of a loan or advance on wage; repayment of an accidental overpayment; accommodation provided by the employer; and union subscriptions or pension contributions.

In cases where employees contribute to a tea and coffee kitty, payments into the kitty should be made by employees after they have been paid.

For accommodation, the rules are complicated, representing a further potential pitfall. You may offset the value of free or subsidised accommodation against the NMW or NLW up to a value of £42 a week. If you deduct more than that from pay at the rate of NMW or NLW, you will be in breach of the regulations.

Payment on a salaried basis where workers then increase their hours, so that their effective hourly rate falls below the  NMW or NLW, is another potential hazard.

These pitfalls underscore the need to have robust payroll procedures in place and we advise businesses to seek professional advice on payroll matters.

About the author

Rebecca Bradshaw is a director at accountancy firm Rotherham Taylor Limited