National Minimum Wage and how to be compliant when paying salaried workers

By Ian Goodwin and Jane Gilmore, Employment Tax and National Minimum Wage specialists at Forvis Mazars

When assessing compliance with the National Minimum Wage and National Living Wage (referred to collectively as NMW) for salaried workers, it is important to note that simply dividing an annual salary by 12 months (if paid in equal monthly instalments) and comparing this to the basic contractual hours is not sufficient.

Many salaried workers do not have a contractual entitlement to additional pay, meaning, checking compliance against only contractual hours could lead to compliance issues.

Payroll teams, whether in-house or outsourced, typically base their NMW compliance checks primarily on the payroll data and supporting information provided to them. In particular, outsourced payroll departments often lack visibility into the daily operations and working practices of the business, so they may be unaware of the broader implications related to the NMW compliance check.

Some of the compliance risks to consider are:

Salaried hours

Salaried workers are generally paid monthly for their contractual hours only, unless there is an entitlement to paid overtime. However, many do not have a contractual right to additional pay for extra hours worked and are expected to work the hours as needed to meet business demands, which can vary each month. Employers must ensure that any unpaid extra hours worked throughout the NMW calculation year do not affect compliance. Unpaid time worked can soon accrue and impact a salary workers NMW pay.

Additional working practices and policies outside of payroll may present further risks and should be investigated to prevent unintentional breaches of the NMW.

Working time

All working time must be accurately recorded per NMW requirements and reported to payroll for payment. For example:

• • Hourly paid workers should have their actual worked hours reported, not just scheduled hours, to ensure any additional time worked is compensated.
  • Workers paid an annual salary should have any unpaid additional hours worked recorded and monitored to prevent an NMW breach.

• Payroll, especially when outsourced, may not be aware of additional working time unless it is reported to them. 

Deductions/reductions that impact NMW pay

Payroll systems are typically set up to handle pay components and deductions in line with NMW compliance. However, there can be situations where workers need to buy specific clothing/equipment or footwear to meet company policies without reimbursement. The cost of these items would reduce NMW pay in the period the purchase is made. Since payroll might not be aware of this requirement, it wouldn’t be included in their compliance check, and may potentially lead to a NMW breach. 

How can I remain compliant when paying salaried workers

Monitoring working hours and identifying excess hours for salaried employees can be complicated and is currently under scrutiny from HMRC so employers must remain compliant.

Payroll alone cannot manage this; it requires support from various departments, including operations, HR, finance, IT, and legal. NMW non-compliance, even if unintentional, poses financial and reputational risks. Penalties include a charge of 200% of the underpayment calculated, along with automatic media naming if total arrears exceed £500. 

National Minimum Wage breaches

Find out how to avoid National Minimum Wage breaches and how at-risk you are by completing our questionnaire.

You will receive a high-level risk report and risk score as well as a free, initial consultation with one of our specialists. We will highlight any potential remedial actions necessary to ensure your organisation is up to date with its compliance obligations. Find out more – 

How to be compliant when paying salaried workers – Forvis Mazars – United Kingdom