The record keeping rules for national minimum wage are about to change. On 1 April changes to the legislation will come into force affecting both the rate of pay and the records you need to keep to prove you're paying the right amount. The changes to the rates have been well publicised, as they always are. A reminder – the National Living wage is the highest band of the National Minimum Wage which staff should be paid from 1 April if they are aged 23 or over. It will rise to £8.91 - an annual pay rise of £345 for a full-time employee on that rate. Less well publicised, but nonetheless important, is an extension to the recording keeping period from three years to six years. This is the period for which an employer must keep records sufficient to establish that it's paying a worker at a rate at least equal to the applicable minimum wage rate. The extension also applies to records made before 1 April 2021 if the employer was already required under the rules to keep the records immediately prior to that date.
This has always been a tricky area for employers – we often see technical breaches, inadvertent mistakes, which if picked up the Revenue can have serious consequences in terms of financial penalties and reputational damage – the Revenue still runs its ‘name and shame’ list. Jon Fisher has been advising on this and he joined me by video-link from Leeds to discuss it. I started by asking why the change to the record keeping period is changing:
Jon Fisher: “So currently, employers have to keep records for three years to demonstrate that they have paid workers at least the national minimum wage and it has always been slightly odd, and caused problems with HMRC investigations, because HMRC can enforce arrears for up to six years, so for that additional three year period there are often disputes about exactly what is owed during that period and it causes employers problems because they haven't kept those records. They are now going to line up those two pieces of legislation and records will have to be kept for six years, and that includes records up to 1st April, within that three year period, you need to keep those for six years now, so you need to extend the time of the last three year records, as well as keeping any new records for the six year period.”
Joe Glavina: “It all sounds fairly straight forward, Jon, but we often see clients falling foul of technical breaches. Why is that? Where's the complexity?”
Jon Fisher: “I think the complexity is in trying to show that you have paid national minimum wage when it's not just a case of showing how much you paid somebody. National minimum wage is a product of pay and time worked. The payroll side of things will be relatively straightforward, most people will keep that for six, seven years anyway, for HMRC reasons. It's the working time bit which is difficult and which will change, making sure that you've got a record of how many hours people have worked so that you can then compare that to payroll and show in each and every pay reference period they have received at least the rate of national minimum wage. Working time legislation also requires you to keep records for working time but they only have to be kept for two years and, again, in my experience, not everyone is keeping those records. The bits where employers fall foul tend to be around unplanned working time. So if you're closing up the shop and you spend 10 minutes after your shift helping out closing the shop or you undergo security checks at the end of your shift, that kind of thing might not be captured within a normal time recording system. There has to be some kind of way of capturing that time to make sure we can accurately say how many hours and minutes anybody worked on a particular day.”
Joe Glavina: “Jon, can I ask you about HMRC’s enforcement strategy? As I understand it, they do allow self correction but not once they've contacted an employer to initiate an investigation”
Jon Fisher: “That's exactly it. So you can self correct, and as long as you pay arrears before HMRC get in touch, when HMRC do get in touch they won't take enforcement action against you, they won't issue penalties, you won't have the public naming and shaming. If they get in touch and then you self correct you will still have to go through pay penalties and face the prospect of public naming and shaming from the government lists and so it's really advisable to try and get on the front foot and correct any problems before you get that call from HMRC and we would recommend legally privileged audits to assess your current compliance if you've got any concerns, so we can pick up any problems that you may have and correct them before it's too late and before HMRC get in touch.”
Joe Glavina: “Any final advice to HR on this Jon?
Jon Fisher: “The other thing to bear in mind is just that the rates are going up. The rate for 23 and over is going to go to £8.91 from 1st April and it's the normal points that you need to watch out for which is that it's not just a case of paying people £8.91, you need to make sure that salary sacrifice is duly being accounted for, any salary sacrifice comes off that rate for national minimum wage purposes so they need to be paid £8.91 after the sacrifice. So particularly around auto enrolment pensions you need to make sure that the net rate payable is £8.91. You also need to make sure your systems cope well with people's birthdays as the young people move through the bands, and their national minimum wage entitlement increases, to make sure that those are automatically kick in and that they do get the right increase. So it's the normal principles, but as the rate goes up, it's surprising how high it actually works out now in terms of a salary and national minimum wage is still increasing, even in the pandemic, at a rate greater than inflation and, therefore, more and more people are coming within scope of potential breaches when you take into account salary sacrifice and other deductions that are made."
The government has published all the new rates for both the National Minimum Wage and the National Living Wage along with the qualifying criteria so that is a good place to check you’ve got this right. We have put a link to that in the transcript of this programme.
- Link to Government guidance on NMW