Payroll Defaulters

In February, HMRC put out its most recent list of companies that have failed to pay their employees the National Minimum Wage (NMW). This is a key component of the government's efforts to enforce the minimum wage and is created in conjunction with other elements like backpay and fines.

The list, intended to 'name and shame' those companies that don't pay the minimum wage contained the names of over 500 UK companies that didn't get their payroll right and are now subject to reputational harm and financial impacts. Financial leaders like you need to know - how can you keep your organisation from ending up on HMRC's next NMW 'name and shame' list?

What is HMRC's National Minimum Wage Naming Scheme?

The NMW Naming Scheme is a measure put in place to discourage organisations from paying under the minimum wage. It is a regular list of all of the companies who have underpaid their employees during that timeframe. The scheme has been going on for some time, but in 2018, the government reviewed the Naming Scheme for effectiveness. The first release of the list after the 2018 review changes happened on 31 December 2020. Which means we're likely to see this list continue for the foreseeable future.

And that's not the only consequence. Companies which end up on this list are both fined and required to make up the difference in pay. This can be quite a hit to a business' finances depending on the extent of the issue. From this most recent list, named employers have been ordered to repay a total of £16 million to their employees. With additional financial penalties on top of the repayments to the172,000 underpaid workers.

Sudden payments of this type can be extremely difficult for companies to manage, especially in times of economic turbulence. With the NMW set to increase by nearly 10% next month, any organisations that are currently struggling will need to be especially careful.

What mistakes put you on the 'name and shame' list?

Paying your employees under the minimum wage can happen even when their regular wage should keep them above that level. In fact, there are a wide range of reasons that someone might end up underpaid. Here are the most common reasons that employers end up on that list, from most frequent to least:

  • Reductions, deductions or payments that take pay below the minimum wage
  • Unpaid working time that takes pay below the minimum wage
  • Failure to pay the correct rate to apprentices
  • Failure to pay the uprated minimum wage
  • Failure to correctly apply the accommodation offset
  • Incorrect work type
  • Work status error

35% of those named deducted pay from workers' wages taking them below NMW, 31% failed to pay workers for working time and 16% paid the incorrect apprenticeship rate.

How to avoid getting on the list?

Finance leaders like you are becoming increasingly involved in and concerned with the effective running of your payroll. This is a great way to have more oversight into your business' outgoings and to make sure that payroll activity aligns with the wider business strategy. However, it does mean you also need to be more actively involved in mitigating the consequences of payroll going awry. Here are three ways to make sure your payroll is compliant:

  • Mapping and reviewing your processes - Take the time to consider every part of the payroll and benefits processes, looking for points of failure and use the common errors as a starting point.
  • Understanding your payroll tech - Make sure you have the right technology in place and that it's been set up correctly to flag or resolve any issues that come up.
  • Seeking external help - Payroll is complex and setting up a system is its own, specialised skillset, so getting help with the implementation can mean the difference between getting it right and missing a key step that has financial ramifications down the line.

By really understanding your processes and making sure your payroll technology is correctly set up, you'll be on the right path to avoid the name and shame list. That said, seeking external help can give you both the confidence and the skills that you need to be sure your payroll is done right.

Author: Helen Armstrong

Helen founded Global HRIS Transformation Consultancy, Silver Cloud, in 2009, after seeing a demand in the market for a more agile and cost-effective HRIS and Payroll Consultancy. Since then, Helen and the team have gone on to support hundreds of global mid-market and enterprise organisations to select, implement and manage their HR and Payroll systems.