NLW April 2016: How to Avoid Prosecution for Underpayment

April 2016 sees the introduction of the National Living Wage (NLW), with the minimum rate of pay for workers aged 25 or over increasing from £6.70 to £7.20. This new rate represents an increase of £910 per annum for a full-time worker on the current National Minimum Wage.

Although the rate for over 25s is most frequently quoted, it is important for employers to note that there are varying rates that apply to younger staff and apprentices and the way in which these are calculated. The Government can fine employers up to £20,000 for every employee paid below the relevant legal minimum rate and ignorance of the correct rates is no defence. Read on to find out more about the new NLW and how to avoid the risk of prosecution for underpayment.

Most employers are well aware of the introduction of the NLW but may not be aware of activities which could mean that staff are actually receiving a salary which breaches legislation. Providing a basic rate at, or just above, the NLW may not be enough to prevent you from being at risk from prosecution.

5 Steps to Ensure You Are Not in Breach of the National Living Wage

  1. Consider whether any compulsory deductions that you make, e.g. for uniforms, DBS checks, etc., do not mean that the average pay of an employee falls below the relevant rate. Even if the rate that you pay is legal, reducing the average rate to below £7.20 per hour (for over 25s), via such deductions, is against the law.
  2. Take the same approach to any unpaid training and staff meetings that you expect staff to attend. If staff are spending a considerable amount of time on unpaid work-related activities, this may once again reduce their pay rate to below the legal minimum.
  3. Review any payments relating to sleep in shifts, where the staff member may be required to be on call during the night. Such shifts require payment at the NLW and existing arrangements, where a lump sum payment below this level is made, are not acceptable.
  4. Remember that travel time to and from work-related activities may also be included in the calculation of the NLW. If staff are expected to travel to off-site training courses or meetings, or to visit clients at home, the time involved may need to be considered.
  5. Be aware that the changes to the NLW that come into effect in April only affect workers over 25at this time. Further changes affecting workers under the age of 25 and apprentices will come into effect in October.

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