What does your charity need to know when it comes to National Minimum Wage compliance? Caroline Jones from BDO shares some advice on what to consider and how to avoid pitfalls.
The introduction of National Minimum Wage (NMW) has had a transformative effect on the UK’s labour market but it has become a minefield for employers trying to comply with the regulations.
Keeping on top of NMW continues to be a challenge for many organisations and for charities employing more than 950,000 paid workers, as there are many considerations.
Underpaying pitfalls
NMW is the rate paid to those who are above school leaving age and below 23, and National Living Wage (NLW) to those over 23, for ease we refer to NMW throughout this article.
Underpaying NMW not only impacts employees but also affects employers. Not only are there costs associated with having to repay underpayments and penalties (of up to 200%), but also reputational risks, as evidenced by the regularly published lists of organisations identified as underpaying NMW in the past.
Identify the worker type
Worker types must be identified correctly, as for NMW purposes there are different rules and calculations applicable to each type of worker.
There are four types of worker categories for NMW purposes, and it is vital that organisations know what type of workers they are engaging with. The four types are:
- Salaried hours workers
- Time workers
- Unmeasured workers
- Output work
It is vital that you understand which category your workers fall into in order to calculate NMW correctly to avoid non-compliance with the rules.
Don’t make your volunteers workers in HMRC’s eyes
Volunteering is, of course, hugely beneficial for both charitable and other not-for-profit organisations, as well as for the volunteers themselves.
The biggest area of confusion is what you can provide to volunteers without there being an impact on their status as volunteers.
This should be restricted to the reimbursement of costs incurred, such as travel costs using HMRC’s approved scale rates in relation to travel and subsistence, including using HMRC’s Approved Mileage Payment (AMAPs) rates for a volunteer’s travel in their own car.
Any costs paid in excess of those actually incurred, or benefits in kind provided, can cause HMRC to consider the volunteer as a worker and, as such, entitled to NMW.
How does salary sacrifice impact NMW levels?
If employees participate in any sort of salary sacrifice arrangement, such as pension salary sacrifice, then it is the post-sacrifice salary that is considered when calculating if NMW has been paid.
The value of the benefit provided in exchange for the sacrifice cannot be included in this calculation. Even 'higher paid' employees can be caught out with one-off sacrifices.
Deductions
Deductions from salary can also impact NMW. Examples can be as simple as an administration fee charged for processing an attachment of earnings order or requiring workers to wear uniform, which they themselves pay for.
Certain deductions do not need to be taken into account however, such as properly structured loan repayments, advances of wages or pension contributions (outside salary sacrifice arrangements), amongst others.
Accommodation
Rent and/or the cost of associated services paid by workers for accommodation provided to them either by the employer, a connected business, or business partner reduces pay for NMW purposes.
In these circumstances, consideration needs to be given to whether the accommodation offset can be taken into account for NMW purposes (currently £8.36 per day).
Know the risk areas to ensure you comply
It is important to ensure that you have taken the necessary steps when considering whether your organisation has met its NMW obligations. You should have processes in place to consider all of the above potential risk areas.
We must note that the above does not include all of the areas that should be considered as part of ensuring NMW compliance, but instead gives an indication of the main areas reviewed by HMRC when carrying out an inspection.