The debate around the rates at which the National Living Wage and National Minimum Wage should be set continues to make headlines

At the time of writing, the National Living Wage (NLW) the rate payable to those aged 25 and over is set at £8.21 per hour. However, both the Conservative and Labour parties have recently announced important changes they would seek to make to the NLW. For its part, the Conservative Party has recently confirmed its intention to raise the NLW to £10.50 by 2024. It intends to combine this with a lowering of the age threshold at which the NLW becomes payable, from age 25 down to age 21. The Labour Party has said. “we will seek to increase the rate to £10 per hour and make this applicable to all workers aged 16 and over.”

This would effectively abolish the lower ‘youth rates’ of National Minimum Wage (NMW) that currently apply to:

- Anyone aged under 18 (£4.35 per hour)

- Anyone aged 18 to 20 (£6.15 per hour)

- Anyone aged 21 to 24 (£7.70 per hour)

Ultimately, whatever the precise details of any changes going forward, it’s likely that the NLW (or an equivalent replacement) will be payable to many more workers in the near future. Richard Maitland, Partner at MHA MacIntyre Hudson, said: “There are wider issues for employers to be aware of when considering whether they are compliant with the rules, as well as the potential impact of non-compliance.

“Recent steps to scale up enforcement of the NLW/NMW across all sectors of the economy also point to a more challenging compliance environment.”

HM Revenue & Customs (HMRC) enforces NLW / NMW on behalf of the Department for Business, Energy & Industrial Strategy (BEIS). Over the past four years, BEIS has more than doubled the budget it provides to HMRC for NLW / NMW enforcement from £13.2m in 2015/16 to £27.4m in 2019/20. The combined financial impact of NLW / NMW arrears and penalties for non-compliance can therefore be significant. Whether an individual employer is complying with the NLW / NMW rules is determined by a complex interplay of factors.

The experience of employers who have undergone HMRC NLW / NMW reviews is that they often focus on strict technical breaches of the rules. In practice, this can mean that employers who in no way set out to deliberately underpay workers can still find themselves in a non-compliant position. For example, taking a deposit for a locker key has been interpreted by HMRC as reducing a worker’s NLW / NMW pay in the pay period in which it is deducted. When at the end of employment this amount is returned to the worker, the nature of that payment has also been debated “is it correcting an earlier underpayment, or new additional pay”?

Once HMRC feels it has identified a technical breach, the impact of this can often turn on a question of fact. For example, it might perhaps be conceded that changing time at work, before an employee ‘clocks on’ and starts getting paid, is working time for NLW / NMW purposes. The question then arises: how long does it actually take employees to change at the start and at the end of a shift? Employers’ experience is also that HMRC’s view of these facts can differ from the reality of working practices, and so their view can be challenged if supported by robust internal analysis.


For more information, email richard.maitland@mhllp.co.uk or call 01604 624011

Richard Maitland Partner at MHA MacIntyre Hudson
Richard Maitland Partner at MHA MacIntyre Hudson