There are numerous national living wage compliance challenges that employers face. Reading the below will help you avoid some common errors and NMW implications.
Unpaid Working Time
Workers are entitled to pay for all time spent working therefore additional consideration will be needed of a workers full role and responsibilities. All working time must be included in the required NMW calculations, this applies to employees performing hourly paid work and salaried work.
For example if an employee works an 8 hour shift and is required to stay an additional 30 minutes after this to help clear down and close then they are entitled to be paid for this additional 30 minutes of work at the relevant NMW rate. Or even answering emails outside of the standard day. Being able to evidence the actual time worked by employees is critical to demonstrate NMW compliance.
Travel Time
An employer does not have to pay for the time spent on an employee commuting to and from their workplace as this is not working time. However, an employee who is required to travel from one work site to another during the working day, then this travel time is required to be included for pay purposes.
Apprentice Rate
Apprentices who are entitled to the NMW band will be either employed on apprenticeship schemes or directly engaged under a contract of apprenticeship.
Where an apprentice is aged 19 or over and has completed the first year of their apprenticeship, the apprentice rate will cease and the age category NMW will apply.
For example, a 35 year old apprentice that is yet to finish the first year of their apprenticeship will be entitled to £7.55 per hour from 1st April 2025. When finishing the first year of their apprenticeship they will then switch to being entitled to the National Living Wage rate of £12.21 per hour.
Employers will need to ensure they continually monitor the workers age and the stage of their apprenticeship.
Accommodation
The employee is a tenant in accommodation owned by the employer. Any ‘payment’ made to an employer for accommodation, (above the accommodation offset allowance, currently £9.99 a day) will reduce the workers pay in the pay period it is made. It doesn’t matter if the payment is made via direct debit, cash or deducted from their wage, the amount will reduce the NMW pay they receive.
Savings schemes
Voluntary saving schemes such as Christmas savings clubs and a summer holiday saving scheme can hold a NMW risk. If the voluntary savings are deducted from the employees salary, the deducted amount will reduce the employees NMW pay in the period it is made.
Additional allowances
If you pay an employee for working in a specific location, working an early shift or a first aid allowance, although these payments will be received by the employee, for NMW calculation purposes you cannot include any amount of allowances towards a workers pay.
Performance related bonuses
Performance related bonuses can count towards a workers NMW pay BUT only on the pay period it is received, not spread across the year. Although you may carry back one 12th of the bonus the pay period before its is made, (if required).
Uniform
A staff uniform or a specific dress code policy can be full of NMW risks. Often such item as black shoes or white shirts are stipulated in a company dress code policy – leading to NMW risks. If an employer requires their staff to comply with a dress code policy but does not provide the garments or reimburse the costs, the actual cost of purchasing the items will reduce NMW pay in the pay period they are bought.
Salary sacrifice options
Businesses offer many salary sacrifice agreements for employees, including, cars, pension and holiday purchase to name a few. Any salary sacrifice will result in a contractual change to an employees salary, therefore, the NMW calculation which is required each and every pay period must not drop below the NMW rate. Even if an employee voluntarily requests this, a business cannot reduce their pay below the NMW threshold.
Minute security check
Having sight of the actual working time of employees is critical – without the actual working time how can an employer prove they are paying at least NMW? Some organisations require employees to pass through a security check at the end of each shift. The time queuing and passing through the security check will always count as working time.
Hours of Overtime (unpaid)
Often salaried employees are contracted to work a set number of hours each year, sometimes the contract will stipulate that more working time may be required (without pay or TOIL) – depending on the needs of the business. This does not negate the employers responsibility to include these additional excess hours in the employees NMW annual calculation.
Staff discount
Something intended as a benefit for employees can sometimes lead to possible NMW errors. If the staff purchase is deducted from wages, (even if the employee requests this), the amount of the deduction will reduce NMW pay. The reason is that the deduction flows back to the employer and is for the employers own use and benefit. However, if a separate ‘payment’ is made for the discounted goods then it will not reduce NMW pay.
Commission payment
Identifying the correct worker category is fundamental to NMW compliance. The NMW calculations vary depending on which worker category the employee is. Many businesses pay an annual salary (equally split across the year) this could be seen as salaried work but if the employee also received regular monthly/weekly commission then the legislation identifies them as an unmeasured worker – with a different set of calculation rules and requirements.
Training courses
Some employers offer to support staff, paying for further education or training costs. A clawback clause is sometimes agreed if the employee leaves the business within a specified time frame. However, if the training is a requirement of the role then any clawback made cannot take the pay below the NMW rate.
