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How can retailers avoid HMRC trouble when it comes to National Minimum Wage?


With news of the National Minimum Wage dominating headlines regardling the retail sector last week, legal experts have said employers needed to be as vigilant as ever to ensure their workers were paid correctly.

Last week, Sports Direct promised to remunerate its Shirebrook warehouse staff at a rate that’s above the National Minimum Wage (NMW).

The pledge came after the retailer revealed the results of an internal review, which also proposed other changes such as guaranteed working hours, following weeks of controversy and accusations of “Victorian” working conditions.

Shortly before that, department store chain Marks & Spencer promised to pay retail customer assistants well above the NMW rate at £8.50 an hour – or £9.65 if they work in London – from next April.

However, Sunday and bank holiday pay rates would be scrapped and become standardised. 

The raise came after 70,000 M&S employees signed a petition urging the company not to go ahead with original pay cut proposals to offset the cost of implementing the NMW.

The government recently named and shamed 197 employers for failing to pay their workers the NMW, with the HMRC often zeroing in on retailers – a sector it alleges most frequently breaches NMW legislation.

But with new NMW rates coming into force on October 1, legal experts have said retailers now was a good time to review their pay rates to ensure it meets legislative standards or risk being subject to a fine, being named and shamed, enduring Employment Tribunal claims or even criminal liability.

“The best way for an employer to protect its position is to conduct a full review of its pay roll and contracts of employment to identify potential risks and pitfalls,” Thomson Snell & Passmore partner Susanna Rynehart told the Retail Gazette.

“If an employer discovers that it’s paid a worker below the legal threshold then it must take immediate steps to pay any arrears."

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Lisa Patmore, a partner in the employment team at Lewis Silkin LLP, agreed.

“Employers need to look at the hours actually worked by their employees that count as working time and then calculate whether the employee receives the NMW for all of that time,” she told the Retail Gazette.

“Employers paying less than NMW must consider why this is, whether any benefits given can be counted towards NMW and how this fits with the strict requirements of NMW legislation. 

“The calculation is slightly different depending on the type of employee – for example an hourly paid versus a salaried employee.”

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Patmore added that many instances of non-compliance are unintentional, and usually occur because employers don’t properly know their obligations. 

“Employers therefore must have systems in place to identify when workers move from one rate to another and that correct rates are being paid at all times, ensuring that no employee ever falls through the gaps,” she said.

“Given the continued rises in NMW, employers also need to consider the effect on their wider employment bill, including costs such as pension and National Insurance contributions. These factors will need to be carefully reviewed during budgeting to avoid nasty financial surprises.” 

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Rynehart said retail employers also needed to ensure they kept records proving they were paying the NMW for three years, especially when HMRC have the right to carry out checks at any time.

“Employers must also be aware of the risks of offering staff discounts that are taken off wages for things that are bought for the job,” she said.

As an example, she referred to the way fashion retailer Monsoon grabbed headlines last  year when its wages went below NMW because they they offered staff discounted clothes to wear as a uniform. 

“The store had to pay £104,508 to 1438 employees following a HMRC clampdown,” Rynehart said.

“To avoid making mistakes like this, employers should carry out a review of their pay and working practices as well as their uniform and benefit packages to ensure that staff are paid the national minimum wage if there are any deductions.”

RELATED: M&S boss fights back in pay freeze row

Patmore said asking staff to work earlier or to stay behind – while not get getting paid for it –  also needed to be taken into account.

“While many employers may require their staff to work extra hours, it effectively extends the working day and, therefore, should be factored into payable time,” she said.

“The consequences of employers failing in their duty cannot be underestimated…. If there are concerns or if HMRC launches an investigation, immediate action needs to be taken. 

“Dealing with problems when they are discovered and being co-operative and frank with HMRC at an early stage will usually mitigate any long term damage.”

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Published on Tuesday 13 September by Elias Jahshan

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