National Minimum Wage: 'proportionate' new rules in force from April

The announced changes (17-page / 327KB PDF) include a revised scheme to 'name and shame' those who underpay their workers. Employers will not be named where breaches are caused by certain deductions and salary sacrifice schemes. Changes will also be made to the rules on who counts as a 'salaried hours' worker, making it less likely that businesses will be caught by technical breaches of the rules.

Some of the changes will require legislation before they can take effect. The government is planning to do this in time for an implementation date of 6 April. It has published changes to the NMW enforcement policy (24-page / 401KB PDF), to take effect immediately.

Employment law expert Jon Fisher of Pinsent Masons, the law firm behind Out-Law, said that the changes "address several of the criticisms which have been made of the current rules" and would be broadly welcomed by employers ahead of an above-inflation increase to the NMW and National Living Wage in April though "they do not go far as many had hoped, particularly in relation to salary sacrifice".

The national living wage for workers aged over 25 is due to increase from £8.21 to £8.72 per hour from 1 April; an increase of 6.2%. The NMW for workers in other age groups will also increase: from £7.70 to £8.20 for 21-24 year olds; from £6.15 to £6.45 for 18-20 year olds; from £4.35 to £4.55 for workers under 18; and from £3.90 to £4.15 for apprentices.

The government will resume 'naming and shaming' employers who underpay their workers subject to minimum total arrears of £500, rather than the £100 threshold that applied under the previous scheme, which was suspended in 2018. It will also publish more information about the reasons for breaches, and publish names more frequently. Employers will still have to pay back workers and may be subject to fines of up to 200% of arrears, regardless of the amount underpaid.

Jon Fisher said: "The criticisms of the current rules have largely centred on the fact that, when enforcing the NMW, historically HM Revenue and Customs (HMRC) has taken the same approach to employers who have committed an inadvertent technical breach as they have to those who have deliberately flouted the rules. It has not been possible from the list of employers named as having committed a breach to distinguish between the two."

"These proposals address those criticisms by allowing further information as to why an employer has been named and by reducing the chances of technical breaches. However, for large employers, it remains a concern that the de minimis threshold works on an aggregate basis rather than per employee. Whilst it has been increased from £100 to £500, for those with large workforces this is unlikely to be of use where there are inadvertent system or technical errors which impact a group of staff," he said.

The definition of 'salaried hours' worker will be broadened to cover more employees. Where a worker is classed as salaried hours, an employer is permitted to pay a set amount each pay period even if hours fluctuate. Currently, only workers who are paid weekly or monthly can benefit, but this will be extended to cover two-week and four-week pay periods. Workers will no longer be disqualified if they receive occasional premiums, for example for working on bank holidays, although premiums will not count towards the NMW calculation. Employers will also be permitted to set their own 'calculation year' for the purposes of NMW compliance.

Breaches of the regulations due to deductions from pay will be treated more leniently by HMRC under certain circumstances. The change to enforcement policy will take effect immediately, and apply even where investigations are already underway. Employers will not be fined, or named and shamed, where participation in a salary sacrifice scheme takes net pay under NMW level, provided participation in the scheme is not mandatory and the employee consented to participation. However, employers will still have to pay back any arrears.

Pay deductions for the purposes of non-mandatory purchases from the employer and participation in employer savings schemes will be treated in the same way as salary sacrifice schemes under the new enforcement policy. Deductions for uniforms and other work-related expenditure will continue to be treated as breaches, with associated penalties and naming and shaming implications.

Jon Fisher said: "Employers will welcome the relaxation of the rules on who counts as a salaried hours worker, which will enable them to smooth out pay across the year for employees whose hours fluctuate from pay period to pay period".

"However, they will be disappointed by the extent of the changes in relation to salary sacrifice and deductions schemes such as Christmas saving schemes. Whilst employers may not be penalised for a breach, these schemes will still reduce pay for NMW purposes and so many employers will still look to withdraw them, which will be to the detriment of employees," he said.