National minimum wage (NMW) is a statutory employment right that guarantees employees a wage not lower than that set by the government.
The rates from April 2022 are:
- £9.50 for individuals aged 23+
- £9.18 for individuals aged 21–22
- £6.83 for individuals aged 18–20
- £4.81 for individuals aged 16 –17 (and apprentices under 19)
The onus is on the employer to ensure that NMW requirements are satisfied, and they should be able to prove that the statute was met if challenged by HMRC.
The following pay elements contribute towards NMW:
1. gross salary
2. bonuses
3. commissions
4. incentive payments
5. piecework payments
6. accommodation offset
The first five above are straightforward and easily identifiable. The accommodation offset however, is more complicated and is applicable where an employer provides accommodation to an employee.
Accommodation benefits
An accommodation benefit may arise where an employer provides the provision of a living accommodation to an employee. This may be provided as part of an employment package or may require the employee to pay a rent.
This is the only benefit which can be taken into account when considering NMW.
It is important to note that whilst the accommodation provided to an employee may be an exempt benefit for tax purposes, it will still need to be considered when determining NMW.
The accommodation offset
The accommodation offset is a rate set by HMRC that represents the maximum value given towards an accommodation benefit for the purposes of calculating whether NMW has been paid.
The current accommodation offset rates are as follows:
Daily: £8.70 Weekly: £60.90
Any rental contribution made by an employee above the accommodation offset rate is treated as a deduction from wages, reducing the total pay reflected when determining whether the NMW has been met. Any contribution up to the amount of the accommodation offset is not considered for these purposes.
Any additional expenses an employee is obligated to pay to the employer in respect of the accommodation, such as furniture, rates, and utilities, should also be considered when calculating the total accommodation charge.
If an employee is provided free accommodation, employers can add an amount up to the accommodation offset onto the respective employee’s total pay when calculating wage for the purposes of NMW.
Failure to meet NMW
Sufficient records must be retained for a minimum of six years from the end of the applicable pay reference period to evidence employees have received the NMW applicable.
If HMRC determine that an employer has not paid NMW, the business may be issued with a notice of underpayment. This will require the employer to settle salary arrears. In addition to this, a hefty penalty may be levied against the employer. The employer may also be publicly ‘named and shamed’ online by HMRC.
For more information contact Victoria Thomas victoria.thomas@hazlewoods.co.uk or 01242 680000.