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Key facts about National Minimum Wage

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Who gets it – and who doesn’t?

  • It’s a criminal offence to not pay someone the National Minimum Wage
  • It applies to most workers over school leaving age including casuals, part-timers and agency workers
  • All businesses must comply – regardless of size
  • It doesn’t apply to self-employed people or company directors

Why NMW matters to employers

If your company has underpaid its workers, the consequences could be severe:

Arrears

You must pay arrears to the worker immediately and you may end up paying more than you would have if you had paid the correct amount to start with. In one instance, a national retailer was forced to make back payments of £193,000 for almost 3,500 workers after it required them to be at work before and after opening hours without pay.

Naming and shaming

HMRC will now publicly name any employer, big or small, who breaks minimum wage law.

Penalties and prosecution

On top of the arrears, employers risk financial penalties of up to £20,000.

Criminal prosecution is rare but the most serious cases can be heard in a Crown Court, meaning that there’s a potential for an unlimited fine.

How is NMW enforced?

HMRC have the power to check your wages at any time – it’s your responsibility as an employer to keep records proving compliance with NMW and you have to keep these for 3 years.  You could be randomly targeted or a worker’s complaint could trigger an investigation.

Out of the blue, our biggest client received a random minimum wage inspection. The HMRC inspectors spent a full day digging into the payroll and payment records.

 

We handled the entire assessment on behalf of our client and were happy to host the compliance team at our premises. They delved into the current year’s files as well as the previous three years’ files, picking staff at random and tracing their wages from timesheet to bank account.

 

We spent the day making them tea and being quizzed in depth, using paper and electronic records to prove compliance. With a good understanding of the business, we could answer HMRC’s questions with confidence.

 

The client passed the inspection with flying colours.

 

microscope
Would your business stand up to scrutiny?

Where can I get more help?

The rates change in April each year. Rates for previous years can be found at gov.uk.

A good payroll provider will watch out for NMW compliance issues as part of the service.

  • ACAS 0300 123 1100 (Mon to Fri 8am-8pm, Sat 9am-1pm)

ACAS gives free impartial advice to employers and workers.

Follow this link to report NMW breaches.

This article updated Oct 2024.

Image credit: University of Liverpool Faculty of Health (CC BY 2.0)

National Minimum Wage and statutory pay 2024

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National Minimum Wage rates will increase in April, and staff aged 21 and over are now brought into the top band. The hourly rates for 2024 are:

Apprentice*  U18   18-20   21 and over
£6.40       £6.40  £8.60   £11.44
*If under 19 or in first year of apprenticeship (otherwise refer to age bands).

Statutory Sick Pay increases from £109.40 to £116.75 per week.

Parenting pay (maternity, paternity, adoption pay) rises from £172.48 to £184.03 per week.

Workplace Pensions And You

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Whether you employ 1 person or 100s – all employers now have workplace pension duties.  Even if you think you won’t need to put your staff into a pension scheme, your responsibilities begin on the day your first member of staff starts work.

There are 3 tasks you must carry out to meet your legal duties.

1. Assess your staff

If your staff meet the criteria below, you must put them into a pension scheme and pay into it.

  • Aged 22 or over (up to state pension age)
  • Earn at least £10,000 a year

2. Inform your staff

You must write to all your staff within 6 weeks of your duties start date. This tells them how automatic enrolment applies to them – regardless of whether or not they are put into the pension scheme.

3. Declare your compliance

Within 5 months of your duties start date, you must complete an online declaration of compliance. This tells The Pensions Regulator how you’ve met your legal duties.

Then every 3 years, you must re-enrol anyone who opted out and re-declare your compliance.

Workie

Workplace pensions are not a one-off effort.

  • Employers (or their payroll agents) must continuously assess the workforce.
  • Exchanging information with the pension provider every pay period.
  • Reconciling and paying contributions.

These tasks will increase the cost of running your payroll.

How to avoid HMRC penalties

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HMRC uses penalties to encourage compliance. There are 2 types to watch out for.

Payment penaltiesmissed payment

Pay on time

There are deadlines for paying your taxes. If you’re late in paying, expect to receive a penalty. You may also be charged interest every day until you pay the bill.

Pay electronically

Cheques can get lost in the post. Paying electronically e.g. via online banking is quick and easily trackable.

Use the right reference

However you pay, always include your accounts office reference, otherwise your money will end up in an HMRC slush fund instead of being correctly applied against your account!

Filing penalties

File on time

You must report Pay As You Earn (PAYE) wages in “real time” – in other words, on or before payday.

Weekly, fortnightly, monthly, whatever. Every time someone gets paid through payroll, you must tell HMRC.

File accurately

That’s why it’s so important that you tell us – in advance – about any changes to your payroll.

You may have to prove to HMRC that you weren’t careless in making an error.

 

More on filing penalties

What to do if HMRC say you owe PAYE

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Had a letter from HMRC’s Debt Management division? Don’t blindly pay it.

letter from HMRC Debt Management

So far this week, 3 of our clients have called us about letters from HMRC telling them they owe £100s.

All complete nonsense.

And it’s only Tuesday <sigh>.

1. Check what you should have paid

Ask your payroll provider for a P32. This is simply a list of all the payments that you should have made to HMRC.

For example:

  Pay Period Amount Due to HMRC for Period
     Quarter 1 total295.92
     Quarter 2 total75.48
     Quarter 3 total112.29
     Quarter 4 total180.96
Year Total664.65

2. Check what you did pay

This means going through your bank statements and finding every payment to HMRC. Note how you paid it: online, cheque, debit card etc. Note down the date that the money left your account and the amount paid.

The total of all your payments should be the same as the Year Total on the P32.

If it’s not, then you either overpaid or underpaid somewhere along the line. Work out when and where.

3. What to look for

Page 2 of the letter is the statement of liabilities – pictured below. Look at the total unpaid amount. Sometimes it’s obvious that a payment has gone astray – if your cheque for £45.32 hasn’t cleared, and the statement says you owe £45.32, job done. Others take a bit of investigating.

Dates are key. I can’t stress that too highly.

Late payments cause the most common problem. When you pay late, HMRC will allocate the payment to the wrong period.

For example, look at the handwritten notes below. You can see that our client pays PAYE quarterly. So he made 4 payments, which each match the P32 above.

HMRC statement of liabilities

But now focus on when those payments were made. £180.96 was paid on 7 May. Not only was that late – it should have been paid by 19 April – but critically it was the last payment for the 2013/14 tax year.

Paying it late meant that HMRC automatically took it into the 2014/15 tax year.

4. Do your sums

To check your payments, first knock off any interest that HMRC have added, because the payments you are looking for obviously don’t include that.

So we’re actually looking for £256.61 minus 17p interest = £256.44

We’ve figured out from the payment dates that £180.96 must have been allocated to the new tax year. That leaves £75.48. Ring any bells?

Yep, it’s the payment made on 6 November.

5. Call HMRC

This is usually the painful bit, involving a good 20-minute wait to speak to someone. But funnily enough, when you ring Debt Management division, you often get through straight away.

The first thing they ask is, “Are you making a payment?”

This is where you laugh and say, “No, cos I don’t owe you anything.”

laughing cat

RTI penalties and how to avoid them

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"Submit RTI" written on Post-It noteWhether you run your own payroll or outsource it to a specialist, as an employer the buck stops with you. So it’s important to know your responsibilities.

Whenever you pay your staff, you must tell HMRC about the payments. This reporting is known as real-time information – RTI for short.

If you pay your employees weekly, you must report weekly; if you pay them monthly, send the RTI monthly, and so on.

Double jeopardy

Your payroll must be:

  1. correct, and
  2. submitted on time. Send the RTI on or before the day that you pay your staff. Don’t forget or it’ll cost you.

Second time unlucky

HMRC will let you off once every 12 months – so no worries the first time your RTI is late, but if you make a habit of it the penalties will soon rack up.

How will I know?

HMRC will send out penalty notices only once a quarter, in July, October, January and April.

So if you get a penalty notice in July it will be for a late submission in April, May and/or June. Maybe all 3!

How much?

Unlike CIS penalties (a flat £100 per month), the RTI submission fines depend on your number of employees. For 2014/15 tax year they are:

No. of employees

Monthly RTI penalty

1 to 9

£100

10 to 49

£200

50-249

£300

250 or more

£400

The good news is that you can’t get more than 1 submission penalty per month. E.g. if you send a weekly RTI late for 4 weeks, you’ll only get fined once.

Those are the penalties for late submission – but remember that as well as being on time, the RTI must also be correct.

For errors, the taxman will base the penalty on the amount of potential lost revenue. If you took reasonable care, or were careless but reported the error without being prompted, you might not be penalised at all.

Avoiding RTI penalties

Whether you run your own payroll or outsource it to a specialist, as an employer the buck stops with you. So:

  • Be accurate

Take time to check your figures before paying the wages.

If your payroll service submits the RTI on your behalf, let them know any changes asap; e.g. if anyone leaves or joins, or if you’re giving someone a pay rise.

  • Be on time

If you pay your staff every Friday, that’s your RTI deadline. Diarise it, put a reminder in your phone, stick a Post-it on your fridge, whatever works for you.

If you use a payroll service, give them your info in plenty of time.

Submission penalties come into force from October 2014, so get into good habits now!

 

[color-box color=”red”]

TOP TIP: Run your payroll a week in hand. This means that next Friday you’ll pay staff for the hours they worked this week.

This gives you more time to process the payroll and to send the RTI.[/color-box]

HMRC – late and inaccurate payroll reporting