August 10th, 2018 / Insight posted in Blog

National minimum wage breaches exceed £1 million in underpayments to employees

The government has released a list on its website of some 240 employers who have underpaid more than 22,000 workers. Knowing what you as an employer can deduct from an employee’s wages and what limits are put on those deductions will help stop you becoming the next employer on the list of offenders.

The underpayments total in excess of £1.4 million being owed to these workers. The total amount of fines issued to more than 1,900 employers has now exceeded £8 million over the last five years. It’s unsurprising that, with more employers underpaying employees, the top reason for tribunal claims in 2017 was for unlawful deductions from wages.

So how and why are some of the UK’s larger employers failing to pay employees the national minimum wage? The government’s website also identifies the top five reasons for national minimum and living wage underpayments as:

  • taking deductions from wages for costs such as uniforms
  • underpaying apprentices
  • failing to pay for travel time
  • misusing the accommodation offset
  • using the wrong time periods for calculating pay.

Other than underpaying apprentices, it appears the underpayments are due to deductions or offsetting money from employee wages.

Let’s have a look at two situations where employers might wrongly make deductions from an employee’s wages and how to stick to the rules.

An employee earns £10 an hour and works a 40-hour week. Their gross weekly wage is £400. They have resigned and owe the company £100 in overtaken holiday. This means their gross wage is £300. However, when you work out their wage according to the national minimum wage, it comes to £313.20 (£7.83×40 hours).

This means the maximum amount you can actually deduct in this scenario is £86.80 (£400-£313.20), without breaching the national minimum wage. The remaining balance should be requested to be paid after they have left or written off. This is still the case even if the employee agreed to the deduction being made. To avoid this situation, simply ensure your employees aren’t taking more holiday than they’ve accrued.

Similarly, an employee of yours is staying in accommodation that you provide and you make deductions from their wages to cover the rent. Always be mindful that their gross wage minus the rent amount you deduct should not fall below what they would earn if paid national minimum wage. This still applies if the employee has signed a tenancy agreement or any other form of legal document regarding the accommodation.

Source: Press release “Record 22,400 minimum wage workers to receive millions in backpay” on dated 6 July 2018, accessed on 9 July 2018.