Subscribe to our newsletter

Penalties for minimum wage underpayment soar 24%

HM Revenue & Customs (HMRC) issued over 1,000 penalties to businesses for underpaying the National Minimum Wage (NMW) last year, a 24 per cent rise compared with the previous year, according to data obtained by a law firm.

Penalties for minimum wage underpayment soar 24%
smsfadviser logo
  • Maja Garaca Djurdjevic
  • February 25, 2020
share this article

Figures obtained by Pinsent Masons show that 1,008 penalties were issued in the year to 31 March 2019 – up from just 810 in the year before.

The total value of penalties hit £17.1 million, up more than 21 per cent from the previous year’s £14.1 million, and HMRC identified £24.4 million in NMW underpayments, a 56 per cent increase from £15.6 million the previous year and the highest figure on record.

Employment law expert Steven Porter of Pinsent Masons said the failure to comply with NMW rules could be costly for businesses, with HMRC able to issue a penalty of up to 200 per cent of what it believes it owed.

“HMRC is undoubtedly getting better at identifying non-compliance, largely as a result of having a treasure trove of information from employees and a large budget to spend on its NMW compliance efforts – at £27.4 million for 2019-20,” Mr Porter said.

Mr Porter explained that employers who “technically” breached the NMW rules were being treated in the same way as those who deliberately paid under the NMW threshold.

For example, in the past employers operating a Christmas savings club, where employees voluntarily agree to have money deducted from their net pay and then returned to them nearer Christmas, have been in HMRC's view inadvertently breaching the rules.

The data also showed that HMRC’s increased focus on NMW underpayment was leading to a change in behaviour, with more businesses voluntarily coming forward to pay arrears rather than waiting to be investigated.

The number of employers coming forward voluntarily to ‘self-correct’ their affairs increased to 407 last year, up 45 per cent from 280 the year before.

According to Pinsent Masons, the number of NMW reports made in 2018-19 was 3,890, down from a record 4,237 the previous year. The number of NMW investigations opened last year reached 2,823, down from a record high of 3,975 the year before.

“Employers have a duty to pay National Minimum Wage, but it can be easy to get it wrong. Businesses of all sizes can struggle to ensure they comply with the rules – especially smaller businesses who may not have dedicated payroll teams,” Mr Porter said.

“However, ignorance of the NMW rules is no excuse – adequate policies are essential.

“By far the best way to manage any potential NMW enquiry and underpayment is to identify it before HMRC takes action. Self-correction by employers will stop any penalties from being charged.”

Earlier this month, HMRC announced it would resume ‘naming and shaming’ of businesses who breach NMW laws from April 2020.

Receive the latest Financial Accountant news,
opinion and features direct to your inbox.

related articles