Far too many businesses in the UK are failing to pay the proper national minimum wage. Last December, the Government declared that “Government investigators identified £1.7 million in back pay for some of the UK’s lowest paid workers and fined employers £1.3 million for underpayment.” This was not the result of a few greedy corporations, as 260 employers were identified for underpaying 16,000 employees.

As the minimum wage will rise once again this month, HR everywhere must make sure that workers are being paid appropriately. Some of the underpayment may result from simple short-sighted greed, which backfires as those businesses have to pay back pay and additional fines. But business owners sometimes do not understand the intricacies of minimum wage rules and end up making mistakes. HR thus should be aware of these mistakes and look to make sure that there are no mistakes which could result in a HMRC visit.

Deducting Pay

Restaurant chain Wagamama is one example of a company which failed to pay minimum wage rates due to misunderstanding the rules. In March, the BBC reported that Wagamama “repaid an average of £50 to 2,630 employees” and had been fined an undisclosed amount.

Wagamama had asked staff to wear black jeans or skirt with their Wagamama top, which HMRC interpreted as a request to buy a uniform which would come out of the workers’ paychecks. If your business pays employees minimum wage, you cannot then ask them to pay for expenses out of their own pocket.

This applies to other things beyond uniforms as well. For example, in kind benefits such as free meals, medical insurance, and contributions to a pension, do not count as part of the minimum wage. The only exception is accommodation, such as that provided to an au pair. Furthermore, tips and gratuity charges cannot be counted as part of minimum wage.

In summation, if the average hourly cash that your business pays employees is less than the minimum wage, then you are breaking the law.

Who is entitled to Minimum Wage?

As The Guardian reported last year, some businesses erroneously assume that foreign workers are not entitled to the minimum wage, or that young workers do not have to be paid over the first few months as they have to prove their worth. These assumptions are incorrect. Foreign workers, trainees, and casual laborers are entitled to minimum wage for their work.

There are some individuals who are not entitled to minimum wage, such as workers on a government employment program and close family members. Furthermore, apprentices in their first year and workers under 25 have a lower minimum wage. But practically all of your workers are entitled to minimum wage in some form.

Calculating Minimum Wage

The above should have made it clear, but your business cannot assume that you are in the clear just because you are offering a £7.83 wage, the new National Living Wage. The HMRC calculates wages by looking at an employee’s total paycheck and dividing it by the number of hours worked. If that number falls under the average for any reason whatsoever, then you are not paying minimum wage. Also note that if the HMRC investigates your business, the onus is on you to prove that you have paid workers the appropriate minimum wage and not on them to prove that you have not.

All of this means that your business has to keep properly detailed records. Payroll records may suffice, but not always. This is especially so in the case of salaried workers. It is a good idea to document how many hours those workers worked in a week to show that their salary stayed above the minimum wage, even during those times when they had to work a 60-hour week.  Good records also ensure that young workers get paid the higher minimum wage they receive as they age.

Figuring out Hours Worked

In the aforementioned report from The Guardian, some businesses declared that they did not have to pay workers when there were no customers to serve. While most people should realize how absurd that claim is, they may not realize that their definition of hours worked and the government’s hours are not quite the same. For example, if new workers are required to spend an hour at a training seminar, that is hours worked and they must receive a wage. If your workers are at your business, they must be paid for the time spent there.

Proper Attention and Diligence

Trying to undercut the minimum wage, whether accidently or intentionally, is never worth the trouble. Employees are more aware of their rights, your business can be fined for not providing the appropriate wage or offering employee benefits for school, and you can lose business both by losing good workers and harming your reputation.

Nevertheless, the Low Pay Commission believes that a substantial amount of UK businesses underpay their workers, and they have more resources to investigate. Businesses and HR must take more time to go over workers’ paychecks, stop counting in kind benefits and start counting hours properly, and commit other measures to make sure their workers are being paid properly.