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3 July 2020  -  Accounting Tax

When the minimum wage is not the minimum wage

With much publicity around Sports Direct, and now two local NI businesses, effectively paying below the minimum wage, and HMRC taking a strong stand against businesses, Magic Beans a new business advisory service in Northern Ireland has been helping clients ensure they too do not fall into the same trap.

So when is the minimum wage not the minimum wage?

Most business owners are aware the hourly rate for the minimum wage depends on your age and whether you’re an apprentice, however businesses have been caught out as seemingly routine practices have, in HMRC’s view, meant employees are being treated unfairly and effectively below the legal statutory limits; leading to firms being hit for “arrears of wages” and fined heavily.

“An employee’s average hourly pay is worked out over a period called the ‘pay reference period’. This is usually the period of time that they are actually paid for. For example, if an employee is paid weekly their pay reference period is one week; if they are paid monthly it is one month.” Said Sharon, Co-founder of Magic Beans.

“The pay that counts may not just be the pay your employees receive during the pay reference period. It also includes pay which they earn during that period, but don’t receive until the next one. To ensure you are paying the NMW you need to know what elements of pay count towards the NMW. You also need to know which hours your employees are entitled to be paid for.”

Magic Beans, cofounded and run by Sharon Brown and Clare Galloway, have warned how important it is to note that the following could mean a firm are not paying the minimum wage or are “reducing” the NMW:-

  • There is excessive docking of pay for being late
  • “Check in/ out” or security checks before or after the start of a shift are unpaid
  • Pay is averaged across the pay period and the employee is not paid for actual hours worked.
  • You have “refunded” money your employees spent in connection with their work, for example the cost of purchasing tools or uniform
  • Deductions have been made to cover the cost of items you, as an employer, supplied that are needed for their job, for example, tools or uniform
  • Deductions have been made for the employer’s business’ own use and benefit for goods and services, for example transport the employer provided to and from work, regardless of whether the employee has the option of using the goods or services
  • Travel time is not considered working time.
  • A recent European Directive stated as travelling time could “neither be shortened nor used freely by employees for their own interests” then they were “at the disposal” of their employer. Therefore, their time is covered by the directive and counts as working time.
  • You pay money to someone on work experience, therefore potentially creating a contract of employment and therefore the requirement to pay the NMW.

“Running a business has, without doubts its rewards, but there are also a number of potential minefields. Magic Beans has been set up with this in mind; to offer an outsourced financial controller service to businesses at a price they can afford, bridging the gap between book-keeper and the traditional annual compliance accountant. The Company provides a full suite of real time cloud based management accounting services for businesses in Northern Ireland allowing business owners to not only save money over in-house financial controllers and bookkeeping, but also to ensure their compliance with various regulatory matters and to have assistance in making valuable management decisions.” Clare said.

Employers who discover they’ve paid a worker below the correct minimum wage must pay any arrears immediately.