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The National Living Wage and your business


Posted on 8 June 2017

With news of the National Living Wage (“NLW”) and National Minimum Wage (“NMW”) dominating headlines over the past 12 months, Head of Employment Tax at Smith Cooper, Laura Parr, says employers need to be vigilant to ensure workers are paid correctly.

NLW, which was introduced from 1 April 2016 for workers aged 25 or over, and those not in the first year of an apprenticeship, stands at a top line rate of £7.50 since 1 April 2017 with plans to increase this further. NMW, which currently has a top line rate of £7.05, still applies for workers aged 24 and under.

As part of their bid to tackle tax non-compliance, the Government have been taking measures to ensure that both the NMW and NLW are followed. HMRC have invested heavily in NMW compliance teams, and investigate all calls made by disgruntled current and past employees that are made to the NMW hotline. HMRC’s naming and shaming policy has meant that businesses have been publicly scrutinised for non-compliance, and the number of NMW inspections being carried out has significantly increased.

Laura Parr, who was also previously a HMRC Employer Compliance Inspector herself, states that many instances of non-compliance are unintentional.

Laura commented: “Whilst we are sure that all of our readers are assiduous on ensuring that their staff are paid within their statutory entitlement, there are a number of common misunderstandings that can lead to problems and underpayments.”

“These include contractual recovery of costs via payroll from employees when they leave which often relate to training costs borne by employers, and deductions from payroll with the employees consent to cover the cost of goods or services provided by the employer to the employee.  Establishing and verifying working time for NLW/NMW can also be problematic if the employee has travelling time, waiting time or on call time as part of their role.”

“Even inadvertent errors that have resulted in staff being paid below the relevant rates can be expensive as the employer is required to make adjusted repayments to staff based on the current rates and a minimum penalty of 100% of the amount underpaid is also levied.” 

“In addition, each quarter HMRC publish the full business names of the NLW/NMW offenders, as part of their naming and shaming campaign, and these are regularly picked up by the local press as news items, which can be very damaging to businesses and their reputation.”

“Our recommendation is that all employers should review the arrangements in place to ensure that the relevant NLW and NMW limits are not breached in respect of any of their employees.”

Smith Cooper’s Employment Tax team can provide specialist advice relating to assisting during HMRC NLW/NMW inspections and reviewing business records to identify any potential challenges from HMRC.

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