On 19 December 2024, the Low Pay Commission (LPC) released its report on National Minimum Wage (NMW) compliance and enforcement, shedding light on prevalent underpayment issues and the effectiveness of current enforcement mechanisms. According to the report the sectors most affected by the underpayment issues include care, where operational practices often lead to inadvertent breaches. 

Understanding NMW breach risks is therefore crucial for employers to ensure compliance:

Salaried workers and fluctuating hours: The report highlights that employers often miscalculate pay for salaried workers who do not have a fixed working pattern. While salaried pay arrangements can be compliant with NMW rules, issues arise when weekly or monthly payments are not aligned with the hours worked. For example, an employee contracted for 35 hours a week might work those hours at different days and times of the week without corresponding adjustments to ensure their annual hours for which the salary is set, are not exceeded.

Deductions for costs related to employment: Employers may unknowingly breach NMW rules by deducting costs related to employment. For instance:

• Uniform costs: Deductions for uniforms or mandatory work attire can lower an employee's effective hourly pay below the NMW.
• Training costs: Any training required for the role, including online training completed at home, if unpaid, can result in underpayment.

Salary sacrifice and benefits: Salary sacrifice schemes, while beneficial for employees, can create risks for employers. If participation in these schemes reduces an employee’s cash earnings below the NMW, this constitutes a breach. Employers must ensure these arrangements are carefully monitored to avoid unintentional non-compliance.

Unpaid working time: Employers sometimes fail to account for all hours worked by employees. This often includes:

• Unpaid overtime: Employees working beyond their contracted hours without additional pay.
• Travel time: This is particularly a challenge in the domiciliary care sector. The report highlights that non-payment for travel time between clients can lead to workers effectively earning below the NMW.
• Preparation and closing time: Time spent preparing for shifts, such as handovers, is often overlooked.
• On-call time: Workers required to remain on-call at their place of work.

Incorrect use of apprenticeship rates: Employers occasionally misapply apprenticeship rates, either using them beyond the permissible period or applying them to workers who do not meet the legal definition of an apprentice.

Recommendations for employers

The LPC's 2024 report is a call to action for employers to review pay practices and strengthen compliance frameworks to protect both their businesses and employees. In light of the LPC's report, and to mitigate risks associated with NMW non-compliance, we would recommend the following:

•  Audit practices regularly: Conduct internal audits to identify and rectify any potential compliance issues promptly.
• Accurate classification: Properly classify workers and monitor their working hours to prevent inadvertent underpayment.
• Stay informed: Keep abreast of legislative changes and LPC recommendations to maintain compliance.
• Foster open communication: Encourage employees to voice concerns about their pay without fear of retaliation, promoting a culture of transparency.

If you would like assistance with undertaking a NMW compliance audit, or support managing a HMRC NMW inspection, please get in touch.