This month’s problem concerns:

“I have responsibility for human resources/finance functions in a small business.  I am aware of the increase in the minimum wage, and a rise in contributions under auto-enrolment arrangements. These additional amounts are causing extreme financial pressure on the organisation.  Are there any exceptions which allow me to avoid these increased costs to the company?”

The obligation to pay the national minimum wage/national living wage applies to all employers and requires the company to pay its workers at least those hourly rates, according to the various age bands, increased annually.  You will be aware employees’ and employers’ contributions under the auto-enrolment requirements have also increased and again, where applicable, those contribution rates must be paid.

It may be helpful, if when calculating payment of wages to your staff, you ensure that you consider all the elements of pay which can go to make up the national minimum wage e.g. salary, commission, bonus, and, where relevant, accommodation costs.  You should also be aware that most benefits in kind cannot go towards your calculation of the hourly rate for national minimum wage purposes e.g. lunch allowances, childcare vouchers, overtime premiums, tips, compulsory uniform payments and company car.   Whilst these are financial costs to the company, which may be considerable for a small organisation, you should not take these into account when calculating the minimum hourly rate payable to your staff.

In relation to pension arrangements, you should also be aware that salary sacrifice is not included as remuneration when calculating the national minimum wage payable.  Also, whilst you are obliged to auto-enrol your eligible staff, the company cannot include the employers’ auto-enrolment contributions in calculating the hourly wage rate payable to your workers.

Payment of the national minimum wage, and auto-enrolment for eligible workers, is a statutory obligation.  Failure to comply with provisions of the National Minimum Wage legislation leaves the organisation open to civil action by HMRC and the risk of Tribunal claims by your workers.  HMRC can investigate the company and it is you as the employer who must prove that the relevant workers have received their appropriate minimum wage, or that they are not entitled to it.  Should you fall foul of the requirements, penalties include that HMRC may “name and shame” your company, impose penalties of up to £20,000 per underpaid worker (200% of the total underpayment) or, in the most serious cases of offence, initiate criminal prosecution against the company, and its officers if they have been actively involved in noncompliance.

The most obvious claim for a worker alleging that he/she has failed to receive the minimum hourly rate, is to lodge a claim with the Employment Tribunal alleging an unlawful deduction of wages.  A civil claim for breach of contract is also possible.

Should you fail to comply with your auto-enrolment obligations, this too leaves the company at risk of action by The Pension Regulator who can investigate matters and issue compliance notices which would require you to take particular steps to remedy any failure to comply with your auto-enrolment obligations.  The Pension Regulator can also issue a contribution notice which would require you to remedy any unpaid pension contributions within a specified period.  As with a failure to comply with national minimum wage obligations, there is also the possibility of criminal action where The Pension Regulator believes there has been a wilful failure to comply with the statutory duty.

Whilst pension contributions could be significant costs for a small organisation like yours, you should guard against any action which might be interpreted as inducing your staff to opt out of auto-enrolment.  This activity alone can also lead to investigation/action by The Pension Regulator.

Consequently, you must comply with your statutory auto-enrolment obligations and ensure staff receive their full minimum wage.  You should ensure you keep full records regarding your salary payments and pension contributions etc., in the event there is an investigation/complaint about the organisation’s alleged failure to comply with those obligations. The risk of penalties for the company, and its officers, for non-compliance is significant.