It pays to pay…

In advance of the biggest increase to the National Living Wage since its introduction in April 2016, the government continued its crusade to make work pay by naming and shaming over 200 employers who failed to pay the minimum wage. Lucy Flynn, employment lawyer, looks at the situation from a legal perspective and discusses the repercussions the named employers could face.

The 1998 National Minimum Wage Act provided for the establishment of a Low Pay Commission, which set Britain’s first ever National Minimum Wage (NMW) in April 1999, at £3.60 an hour for workers aged over 22.  The NMW covered around 1.2 million adults, who had an average pay rise of 10% and despite concerns that the NMW would cost jobs, this did not turn out to be the case.

In April 2016, after many years of lobbying from various organisations, the government introduced a new mandatory national living wage (NLW) for workers aged 25 and above and it now applies to all workers over 23.  Initially set at £7.20, the NLW was a rise of 50p relative to the NMW at that time.

The minimum wage hourly rates have increased each year and will rise as follows in April 2022:-

• National Living Wage for over 23s: from £8.91 to £9.50
• National Minimum Wage for those aged 21-22: from £8.36 to £9.18
• National Minimum Wage for 18 to 20-year-olds: from £6.56 to £6.83
• National Minimum Wage for under 18s: from £4.62 to £4.81
• The Apprentice rate: from £4.30 to £4.81

Furthermore, the Living Wage Foundation charity has set a voluntary “Real Living Wage”, and around 9,000 employers have signed up.  The recommended Real Living Wage hourly rate is currently £11.05 in London and £9.90 elsewhere, and it is a wage that is intended to cover every day needs and meet the real cost of living.

Before the minimum wage was introduced, the lowest-paid people consistently saw the slowest growth in their wages and its introduction is reported to have reversed this trend.  Moreover, the government has been robust in taking enforcement action against employers who do not pay their staff correctly. Between 2014 and 2019, investigations by Her Majesty’s Revenue and Customs resulted in orders to employers to pay fines of almost £2million and to repay wages to around 12,000 workers who had been underpaid.  Additionally, and in a move to send a clear message that paying the minimum wage should be non-negotiable, on 9 December 2021 over 200 employers ranging from sole traders to multi-national organisations were publicly named for failing to properly pay their lowest paid staff.


Deductions from workers’ wages for things like food, uniform, work equipment and salary sacrifice schemes accounted for over a third of the reported cases of failure to pay minimum wage, closely followed by unpaid working time for things like “rounding” of working hours, overtime, attending compulsory training, trial shifts or travelling between sites.

Calculating a worker’s pay for minimum wage purposes must be done in a particular way. Some elements of pay do not count for minimum wage purposes, such as; –

• tips, gratuities, service charges and cover charges
• overtime and shift premia
• allowances
• payments by an employer to reimburse a worker’s expenses
• benefits in kind
• loans
• advances of wages
• pension payments
• lump sums on retirement
• redundancy payments
• rewards under staff suggestions schemes
• shares and share options

The starting point for calculating whether national minimum wage is being paid is the worker’s gross pay before any deductions are made.  Including an element of pay that doesn’t count, such as those in the above list, can result in it appearing that the minimum wage is being paid when in fact it is not.

Employers who fail to pay minimum wage face; –

• An order to pay back what they owe to staff
• significant financial penalties of up to 200% of what was owed
• public naming and shaming by HMRC

The government is of the view that there is no excuse for failing to pay minimum wage and has issued, and regularly updates, its guidance to employers on pay.  Furthermore, in December 2021, it published advice on steps employers should take to ensure that workers are paid correctly which deals with everyday scenarios and worked examples.