The National Minimum Wage is still catching out flooring contractors. How can they ensure they stay on the right side of the law?

MID-FEBRUARY, government published its latest list of employers that have been caught out not correctly paying staff and so breaching National Minimum Wage (NMW) legislation.

The list is one of the longest with more than 500 employers named. While some of the underpayments were very small, one employer was found underpaying staff to the tune of £5.1m. And worryingly, of the firms named, there were several involved in the flooring sector. (See panel).
Mark Stevens, a senior associate at law firm VWV, details the legislation aims to ensure ‘workers receive pay in the form of cash rather than benefits in kind’. He also states, ‘it seeks to stop unfair competition based on artificially low prices owing to employers paying workers very low rates of pay’.

As to the mechanics, he says the NMW sets the amount of pay due to most workers from school leaver age up to the age of 25, with the National Living Wage (NLW) applying to those aged 25 or over. All workers, except those who are genuinely self-employed, are entitled to receive the NMW or NLW.

The NMW/NLW is calculated by including most financial awards or payments, but excluding allowances such as regional or on-call allowances, unsocial hours payments, tips and gratuities, or any benefits in kind, with the exception of accommodation up to a specified amount.

Changes from April 2024
‘Prior to April 2024,’ says Stevens, ‘the NLW applied to those aged 23 and above. However, from April it expanded to include 21- and 22-year-olds.’ He continues: ‘The NLW increased by 9.8% from £10.42 per hour to £11.44 per hour. For a full-time employee working 37.5 hours per week, this equates to a minimum annual salary of £22,308.’

As for younger employees and apprentices, they too saw significant pay increases from April. As Stevens explains, an 18-20-year-old’s hourly pay increased to a minimum of £8.10 per hour. Additionally, 16-17-year-olds and apprentices saw their pay increase to a minimum of £6.40 per hour ‘which,’ says Stevens, ‘is a huge 21.2% increase from the current minimum in this bracket’.

It’s for this reason he says employers should pause to consider the impact these increases may have on their business finances and pay structures. In particular, he warns ‘an increase to the rates of pay for the lowest paid roles can create pressure on the whole pay structure of an organisation, decreasing the differential between an entry level role and first line management, for example’.
Consequently, he recommends employers undertake a pay audit to examine the impact these changes will have on their current pay structure.

Enforcement
Under NMW legislation, employers have an ongoing obligation to keep certain records in relation to the hours worked by, and the payments made to, workers. On this Stevens explains ‘all the information about the pay received by a worker in a particular pay reference period must be contained in a single document’.

He says records can be kept on paper or computer but since 1 April 2021 they ‘must be kept for a minimum of six years from the end of the pay reference period following the period to which they relate’.

The ‘pay reference period’ is defined as the period of time that the pay covers. So, for example, if paid daily, the pay reference period is one day, if it’s weekly, the pay reference period is one week, and it’s paid monthly, then the pay reference period is one month.

It’s important to note that, as Stevens points out, the pay reference period cannot be longer than a month.

Like other forms of employment legislation, the NMW is incredibly complex which is why Stevens has seen ‘underpayments being the result of a misunderstanding of the law rather than any deliberate failure by an employer to comply’.

Indeed, there are a number of common scenarios where he’s witnessed employers falling short of NMW. He recommends caution over five distinct problem areas.

First, there’s employment status. Where this is misclassified or where a worker is ‘off-payroll’ employers can fail to pay the correct NMW. Then there are issues over salaried staff who are relatively lowly paid and regularly work long hours; employers fall short when taking into account the hours worked in relation to the rate of NMW.

Another area to keep tabs on is working hours. This may apply if a worker is required to arrive early or stay late for training, debriefing or staff meetings; these hours constitute ‘working time’ therefore they should be paid at NMW. Employers also need to be aware of staff uniforms as employers that require staff to pay for their own uniforms out of their salary can cause pay to fall below the NMW.
Lastly, employers sometimes slip up where they fail to increase a workers’ pay following a birthday which moves them into a new NMW bracket.

The repercussions of getting NMW wrong
For any regime to work there has to be a potential stick and so employers found in breach of the legislation may face significant legal repercussions.

Stevens says ‘it’s important to remember underpaid workers can launch formal and/or legal action. Those who think they’ve suffered an underpayment of NMW can raise a formal grievance to their employer, complain to HM Revenue and Customs or bring a number of claims against their employers’.

In particular he warns they can bring a claim for unlawful deduction from wages under section 13 of the Employment Rights Act 1996; a breach of contract, either in the employment tribunal or the County Court; or a claim for unfair dismissal or detriment under the National Minimum Wage Act 1998.

And then there are the financial penalties that can be brought to bear; employers found to have not paid their workers the NMW can face substantial fines – currently up to a maximum of £20,000 per underpaid worker.

Next on Stevens list is the risk of adverse publicity. As he says, ‘government’s ‘name and shame’ scheme can put a negative spotlight on employers found to be in breach of the NMW legal requirements. This could result in significant damage to the employer’s reputation.’ The February 2024 list is bound to embarrass some.

And for the worst offenders there’s criminal prosecution. ‘This,’ says Stevens, ‘can occur if employers persistently refuse to comply with the law and to co-operate with the compliance officers.’

Summary
The NMW is nothing new and this year celebrates 25 years of operation. While it’s well known and there are some employers who deliberately seek to underpay staff, the majority just make accidental errors. For them the best advice is to look at the risk factors and seek to deal with them.
Adam Bernstein is an independent columnist

FAST FACT
Some businesses in the flooring sector caught out

• Castle Carpets Ltd, Shrewsbury, owed £2,898.12 to 1 worker
• Carpet Kingdom Ltd, Blackburn with Darwen, BB1, failed to pay £693.57 to 2 workers
• Floorbrite Cleaning Contractors Ltd, Manchester, failed to pay £1,703.26 to 248 employees.