Employment Law Director of Peninsula Alan Price comments on why how employers can get the minimum wage right and why it is imperative for them to implement the minimum wage in their businesses

Nearly 700 firms across the UK have been fined nearly £1.4m for paying staff below the minimum wage.

It is a legal requirement for employers to pay all of their workers at least the national minimum wage or national living wage as dictated by their age. Minimum wages are not a new concept – they have been around since 1999 – however, the details change every year when the rates are updated. Employers must, therefore, be alert to the new rates applicable each year for their worker to ensure that they can avoid large fines. Unfortunately, unintentional breaches of the law are dealt with in the same way as intentional ones; innocent ignorance is not a defence.

The government reviews the National Minimum Wage (NMW) rates annually and generally announces an increase each October. The following increases will take effect from 1st October 2016:

  • For workers aged 21 – 24 year olds, NMW will increase to £6.95 per hour
  • For workers aged 18 – 20 year olds, NMW will increase to £5.55 per hour
  • For workers over compulsory school age but not yet 18, NMW will increase to £4.00 per hour
  • The apprentice rate (for apprentices under the age of 19 or 19 and over but in the first year of apprenticeship) will increase to £3.40 per hourThe National Living Wage (NLW) provided a new banding for employees from April 2016, and the law now requires employers to pay at least £7.20 per hour to those aged 25 and over. As the NLW has only been in force for six months there is no increase to this rate in October, instead it will increase in April 2017, meaning the rate of £7.20 per hour will continue to apply. The proposed new rate from next April is £7.50.

 

As a result, some staff will receive a pay increase in October and some won’t. However, from April 2017, NMW and NLW will align and both minimum rates will be adjusted every April from then on. This means it is likely the NMW will increase in October 2016 and April 2017 so may lead to a double pay increase where employers choose to pay the minimum wage to workers.

With rates increasing based on age, employers should make sure they are aware of the age of their employees at the start, and throughout, employment. Whilst age should not generally play any part in a recruitment decision, knowing how old someone is means that employers can pay the correct minimum wage. Keeping track of birthdays is also important for employers who set their rates in line with the minimum wage as this will provide a prompt to increase pay per hour when the employee moves up into the next banding.

Minimum wage law will create different challenges for employers in different sectors – those in care need to consider how to deal with employees who sleep in overnight and employers in hospitality need to know how the law applies to the treatment of tips, for example.

Employees who believe they are being underpaid can make a claim to an employment tribunal or HMRC. In both cases the employer will be ordered to pay the employee what they are owed, but where HMRC find a breach, the employer will also face fines of up to £20,000 per worker and have their name published publically as an employer who has failed to comply with the law.