Businesses still failing to meet national minimum wage rules 25 years on

The national minimum wage celebrates its 25th anniversary today, but a key challenge persists: employer non-compliance. Accountancy firm BDO warns that despite widespread acceptance of the minimum wage, many businesses still struggle to meet the regulations.

Since its introduction in 1999, HMRC has conducted over 87,000 investigations, uncovering widespread violations. In February alone, over 500 companies were named and forced to repay £16 million in owed wages. This adds to the £3,200+ employers identified as non-compliant since a naming scheme began in 2011.

The minimum wage itself has seen significant growth. From a starting rate of £3.60 in 1999, it has risen to £11.44 as of April 2024. This translates to a real increase in take-home pay, with a worker on the minimum wage earning £18,512 in 2024/25 compared to £5,925 in 1999/2000 (after tax and deductions).

BDO tax partner Paul Falvey acknowledges the initial concerns some businesses had about the minimum wage. However, he highlights its current acceptance and the challenges some businesses still face:

• Compliance difficulties: While some violations might be deliberate, others are unintentional. Miscalculations can occur due to factors like not considering actual working hours, uniform costs, or salary sacrifice schemes.
• Impact on businesses: The recent 9.8% rise in the minimum wage may be concerning, particularly for sectors like retail and hospitality. However, Falvey emphasizes the positive impact on low-income earners struggling with the cost of living.
• Future increases: The significant rise seen this year is unlikely to be repeated. The Low Pay Commission predicts a national living wage between £11.61 and £12.18 for April 2025, with a central estimate of £11.89.

Mitigating NMW risks: A proactive HR approach

The consequences of non-compliance can be severe:

• Financial penalties: HMRC can impose fines of up to 200% of the underpaid amount, placing a significant financial burden on the company.
• Reputational damage: Being named and shamed by HMRC can severely damage a company’s reputation, impacting consumer confidence and hindering recruitment efforts.
• Legal issues: In extreme cases, directors can be held personally liable for NMW breaches, leading to potential criminal prosecution.

Here’s how HR professionals can take a proactive approach to minimize NMW risks:

• Develop clear policies and procedures: Establish clear and well-communicated policies on working hours, pay calculations, and permissible deductions. Regularly review and update these policies to reflect any regulatory changes.
• Invest in management training: Ensure managers understand their responsibilities regarding NMW compliance and how everyday practices can impact employee pay. Training should cover areas like identifying unpaid working time, handling salary sacrifice schemes, and managing uniform costs.
• Conduct regular audits: Implement regular internal audits to identify and address potential NMW issues before they escalate. Consider engaging external specialists for a more comprehensive review.

By prioritizing NMW compliance, HR professionals can protect the company from financial penalties and reputational damage, and foster a positive work environment that attracts and retains top talent. This proactive approach demonstrates a commitment to ethical employment practices and social responsibility.

HRD Connect Curators of the New Business Landscape. HRD Connect produces industry-recognized content for senior HR leaders. Through articles, case studies, Q&As, podcasts, events, and more, we offer truly progressive and cutting-edge insights designed to help people leaders address core HR challenges and add greater value to their business.

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