The Risks of Not Paying National Minimum Wage


This article has been submitted by Greenaway Scott

What is National Minimum Wage?

Most workers working or ordinarily working in the UK who are over the school leaving age will be entitled to be paid National Minimum Wage (NMW). The school leaving age in UK is the last Friday in June when an individual is 16 years old.

The national limits are legally binding and increased in April 2018. The current limits are as set out below:

  • 21 to 24 year olds from £7.05 to £7.38;
  • 18 to 20 year olds from £5.60 to £5.90;
  • 16 and 17 year olds from £4.05 to £4.20; and
  • apprentices from £3.50 to £3.70.

The payments that make up the NMW include the following:

  • Basic salary (the gross amount).
  • Bonus, commission and other incentive payments based on performance (but not any premium paid for overtime or shift work.
  • Piecework payments.
  • Accommodation allowance.

Dividends are not countered towards NMW.

Reference period

The hourly pay is calculated in accordance with the reference period which corresponds with the intervals the worker is paid. Workers paid daily have a reference period of one day, workers paid weekly will have a reference period of one week and workers paid monthly will have a reference period of one month. The reference period cannot exceed a month.

For NMW purposes, the pay allocated to a pay reference period is any pay either received during that period or earned in that period but not received until the next pay reference period.

Consequences of underpayment

If an employee issues a claim against a business for underpayment and this is referred to HMRC, it could trigger a notice of underpayment. This will be issued in all cases where it is found that arrears of the NMW were outstanding at the start of the investigation.

As of 1 April 2016, the penalty under a notice of underpayment was capped at 200% of the total underpayment with an overall maximum penalty of £20,000 per underpaid worker.

In the case of Best Connection Group Limited, the HMRC investigated the business and issued 13 notices of underpayment as a result of workers not receiving NMW. This amounted to £63,731 exclusive of the sums owed to the workers.

If the employer does not comply with the notice of underpayment, the enforcement officer can issue civil proceedings in the civil courts or employment tribunal to recover the sums owed to workers on their behalf; or prosecute the employer.

It is a criminal offence to refuse or wilfully neglect to pay the NMW and fail to keep the required records. Civil enforcement is likely to be sufficient in the majority of cases. However, where employers are persistently incompliant when paying NMW and refuse to co-operate with compliance officers, criminal investigation may be appropriate and this offence is triable as an indicatable as well as summary offence.