National Minimum Wage: Underpayment Penalty

First proposed on the 15th January 2014, today (26th May 2015) the Government has now increased the maximum financial penalty for underpayment of the national minimum wage from £5,000 to £20,000 per worker.

The Government, via HMRC and BIS, operates a “name and shame” approach to its enforcement of the national minimum wage. You can see this by clicking here.

HMRC operates on the basis of complaints made to it by workers that they are not receiving the national minimum wage. The businesses involved tend to be, not surprisingly, micro businesses or SMEs.

However, there are some traps for the unwary which could apply to some larger organisations. Genuine ‘Innocent’ employers have been caught out.

This is particularly the case where benefits in kind are used to ‘top up’ pay. BIKs are barely counted for the purpose of establishing minimum wage compliance.

Sometimes the headline hourly wage rate appears to comply with the NMW, but due to the operation of the regulations or the treatment of pay and deductions by the employer the hourly rate of pay is reduced below the required NMW level. We have seen examples of this occur where:

  • The employee is required to use some of their normal pay to acquire “uniform” or other equipment or apparel
  • Employees are required to be on standby or call in respect of their duties for a period of time.


HMRC’s investigation and enforcement officers are becoming more adept at recognising the signs and are now experienced in dealing with the arguments in relation to these issues.

If you have any queries regarding employment law, please contact our Employment team today or email employment@goughs.co.uk or find out more by clicking on the links below: