Avoiding minimum wage shame

The rates of pay set by the National Living Wage (NLW) and National Minimum Wage (NMW) increased on 1 April 2023. Those employers that flout the NMW laws now risk more than just being fined and forced to repay underpayments. HMRC keeps a public 'name and shame' list of offenders. Here, we take a look at the new rates and what to do to make sure you comply.

Naming and shaming

This year the government named and shamed 202 employers for failing to pay their lowest paid staff the minimum wage.

Together these firms were found to have failed to pay their workers almost £5 million in a breach of NMW law, leaving around 63,000 workers out of pocket.

The companies named by the government ranged from major high street brands to small businesses and sole traders. The government reiterated that no employer is exempt from paying their workers the statutory minimum wage.

The NLW and the NMW

Anybody working aged 23 or over and not in the first year of an apprenticeship is legally entitled to the NLW.

Despite its name, this rate is essentially a NMW for the over 22s. The government is committed to increasing this every year.

The NLW rate changes every April, while the NMW rates have traditionally been revised in October. However, since April 2017 the NMW and NLW cycles have been aligned so that both rates are amended in April each year. Employers will need to make sure they are paying their staff correctly as the NLW will be enforced as strongly as the NMW.

The table below shows the NMW and NLW rates applying from 1 April 2023:

*Under 19, or 19 and over in the first year of their apprenticeship

Who does not have to be paid the National Minimum Wage?

• The genuinely self-employed.
• Child workers - anyone of compulsory school age (i.e., until the last Friday in June of the school year they turn 16).
• Company directors who do not have contracts of employment.
• Students doing work experience as part of a higher education course.
• People living and working within the family, for example au pairs.
• Friends and neighbours helping out under informal arrangements.
• Members of the armed forces.

Workers on government employment programmes such as the Work Programme.

• People working on a Jobcentre Plus Work trial for up to six weeks.
• People on the European Union Programmes: Leonardo da Vinci, Youth in Action, Erasmus+ and Comenius programmes.
• Share fishermen.
• Prisoners.
• Volunteers and voluntary workers.
• People living and working in a religious community.

Beware the family company trap

Although there is an exemption for family members working in the family business and residing in the family home of the employer, the Regulations specifically refer to the employer's family. If the family business (i.e., the employer) is a limited company, then it does not have a family. Even if the family business operates as a sole trader or partnership, the only family members exempted are those who actually live in the home of the employer.

Breaching NMW laws

The government can impose penalties on employers that underpay their workers in breach of the minimum wage legislation. The penalty can be as much as 200% of arrears owed to workers. The maximum penalty is £20,000 per worker.

The penalty is reduced by 50% if the unpaid wages and the penalty are paid within 14 days. 

Periodically the government publishes a list of employers who have not complied. The reasons employers fail to comply vary and include topping up pay with tips and deducting sums for uniforms, among others.

The employers named by the government fell foul of the following NMW laws:

• 39% of employers deducted pay from workers' wages
• 39% of employers failed to pay workers correctly for their working time
• 21% of employers paid the incorrect apprenticeship rate.

Calculating the NMW and NLW

Calculating the NMW and the NLW can prove to be complex. Please contact us to discuss any concerns you may have over this or any other payroll matters.