Don’t under-pay your workers

Jason Piper says National Wage errors are more common than you might think

This article originally appeared in CAT in April 2012

Are you selling your workers short?
Are you selling your workers short?

According to pay monitoring site Payscale, technicians can earn as little as £9474 per year, while a parts advisor earns, at the lowest point, just £15,510. Considering that these numbers are the mid point of the salaries reported, the pay might actually be much worse. The Low Pay Commission has reported in the past that motor trades and retail are problem areas for them.

The National Minimum Wage (NMW) covers all employees, irrespective of job. It’s enforced by HMRC and in 2010/11 they identified almost £4 million in arrears, benefitting around 23,000 workers.

The NMW teams operate under the Police and Criminal Evidence Act and can visit at any time, without reason, to inspect wage records. Obstructing them is an offence, which carries a fine of up to £5000 and can lead to a criminal record. If you’ve deliberately underpaid, or tried to disguise underpayments, thats a criminal offence too, again carrying a £5000 fine.

For underpaid NMW, you’ll have to pay the lost wages, as well as paying a penalty  half the underpayment, capped at £5000, or a quarter if you settle everything within 14 days of the notice. Ignoring it will lead to prosecution, but you can appeal.

HMRC has a list of the most common failures they come across:

1. Failure to record working time properly

Are workers required to arrive early or leave late? Do they carry out other work related activities outside normal working hours? If so, they must be paid the NMW for this additional time, as well as for their normal working hours. Even if this is something as simple as expecting the apprentice to sweep up and tidy away after their official hours have ended.

2. Apprentices

Since October 1, 2010 apprentices on a formal apprenticeship scheme or contract have been entitled to a NMW apprentice rate, currently £2.60. After a year and on reaching the age of 19, they should get at least the rate appropriate to their age. From April 2012, there’s a new type of apprenticeship, which is a ˜contract for services rather than a˜contract of apprenticeship. Bear in mind that whatever their age, employees on one of these contracts will qualify for the normal age related NMW, not the lower apprentice rate.

3. Birthdays

Do you record your employee’s birthdays? Is it linked to your payroll? NMW rates are based on the age of the employee, so if you miss someone’s 18th, 19th or 21st birthday it could mean you’re paying them the wrong wage.

4. Piece rates

You may pay your workers by their productivity. However if the worker is required to work fixed hours, and paid for what they make in that time, then they must receive at least the NMW for those fixed hours. That doesn’t mean you have to support workers who are unusually slow provided your piece rate allows an average worker to make 1.2 times NMW in an hour.

5. Accommodation

If you charge workers for accommodation, note that these charges are linked to the payment of NMW, even if the accommodation is not directly connected to the employment. You can offset some of the accommodation costs against NMW, but only £4.73 per day.

6. Deductions from pay

In most cases, the NMW is only worked out after any deductions an employer has made to cover things like uniform, tools, transport or purchases of goods and services. If you’re charging for extras, you’ll still need to ensure the remainder of the worker’s pay, after the deductions, meets the NMW for the hours they have worked.

7. Paying the wrong rates

Simply failing to update pay rates for the new levels is surprisingly common. From October 1, 2011, workers over the age of 21 require a minimum hourly rate of £6.08. This will change to £6.19 on October 1, 2012. Workers between the ages of 18 and 20 are entitled to £4.98 and those under the age of 18, but beyond compulsory school attendance, must receive a minimum of £3.68 an hour. For apprentices under 19 or in the first year of their apprenticeship the NWM rate is £2.60. This will change to £2.65 on October 1, 2012.

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