Employers across the UK are already worried about the rises in the National Minimum Wage (NMW), which are set to come into force on 1 October 2016. There are good reasons to be.
HMRC’s recent ‘naming and shaming‘ of 200 employers for failing to pay their workers the legal NMW suggests that the government is cracking down on those employers who ignore the law.
Since the scheme’s introduction in October 2013, HMRC has publicly embarrassed 687 employers, with NMW arrears totaling to £3.5 million.
The latest disclosure in August 2016 accounts for approximately £500,000 of arrears.
….. to adjust your payroll on 1 October 2016. This year you need to think about the National Living Wage (NLW) too.
The NLW rates change April of each year (rather than the usual October change for NMW).
At a glance:
Illustration: Low Pay Commission
(For the uninitiated, the NMW is the minimum wage you must pay workers under the age of 25 and then the NLW takes over for workers over the age of 25.)
So what are the new rates? Let’s start by looking at the NMW increases:
National Minimum Wage
From October 1 2016 the NMW rates for workers under the age of 25 years and apprentices will rise as follows. The current rates are shown in brackets along with percentage increases
- Apprenticeship rate: £3.40 (£3.30 +3%)
- Workers ages 16 to 17: £4.00 (£3.87 +3.4%)
- Workers aged 18 to 20: £5.55 (£5.30 +4.7%)
- Workers aged 21 to 24: £6.95 (£6.70 +3.7%)
The NMW rates are set for the next six months only and it is expected they will increase again on April 1 2017, along with the National Living Wage (NLW) for workers 25 and over. Doing so will bring the two rates into alignment.
As the NLW increase for April 2017 has not been announced yet, you will need to keep an eye out so you can budget for it in advance. Remember to check the new NLW rates (currently set for £7.20) so you can adjust your payroll well in time.
Paying less than the correct NMW or NLW is unlawful, immoral and not acceptable. Workers are well within their rights to raise a formal grievance with their employers or complain to HMRC. If HMRC investigates and finds you are not paying the correct rate, you will be:
- asked to pay back arrears of wages at current minimum wage rates
- pay financial penalties of up to £20,000 per worker
From April 2016, the maximum penalty increased from 100% of arrears to 200% of arrears. It can be halved if paid within 14 days.
Most instances of non-compliance with NMW and NLW are not intentional but happen because of administrative errors. As an employer you need to put better controls in place to identify when your workers move from one rate to another. This is the only way you can prevent your organisation from being named and shamed.
As the continued increase in rates affect other wage costs such as national insurance contributions and pensions, it is advisable to factor the necessary changes into your budget.