Department of Business release more guidance on National Minimum Wage enforcement

National Minimum Wage policy is set by the Department of Business, Energy and Industrial Strategy (BEIS) and compliance is currently enforced by HMRC (although this is likely to change when the single labour market enforcement agency comes into being).

Last week BEIS published a policy document on HMRC enforcement, prosecutions and naming and shaming employers who break National Minimum Wage law. That makes it a great opportunity to revisit some of the basics of how National Minimum wage is enforced.

Announcing the changes, Business Minister Kelly Tolhurst stated that the aim of the changes was to make compliance with NMW as easy as possible, particularly for SMEs.

When a Notice of Underpayment should be issued

A Notice of Underpayment (NoU) should be issued when a compliance officer finds arrears of minimum wage outstanding ‘at the start of an investigation’. This is defined as the date when an officer first makes contact with a business, either by telephone or letter.

Although compliance officers have discretion over issuing an NoU, they should be issued even where:

  • underpayment was accidental
  • arrears have been repaid, in whole or in part, after the start of the investigation
  • arrears have been repaid before the start of the investigation but not the uplifted arrears (which reflect increases to National Minimum Wage rates since the arrears arose).

Generally, NoUs shouldn’t be issued when an employer has corrected their position before the start of the investigation, even if this was done as a result of HMRC’s ‘nudge’ action (where they write to multiple employers to help them proactively identify potential underpayment situations).

Salary sacrifice and deduction schemes

Salary sacrifice and deduction schemes can bring employees under the National Minimum Wage and to avoid breaches many employers responded by withdrawing such schemes. This was clearly not the intention of the regulations as these schemes are hugely beneficial to employees.

To tackle this, the Secretary of State issued a direction in February 2020 covering situations where an underpayment has arisen as a result of certain employer deductions.

An NoU should not carry a financial penalty if all of the following conditions are met:

  1. The underpayment is attributable to one or more of the following:
  • a reduction in pay following a salary sacrifice scheme
  • a deduction from pay in relation to goods or services from the employer (unless the purchase is a requirement imposed in relation to their job e.g. purchase of uniform etc.)
  • a deduction in relation to a savings scheme operated for the benefit of the worker

2. No part of the underpayment is attributable to either:

  • deductions/payments relating to their expenses incurred in connection with their employment or
  • deductions/payments in relation to living accommodation

3. The worker has consented to the deduction

4. The worker has received the benefit of the good, services or benefits

5. The employer has not:

  • been convicted of a National Minimum Wage offence and this conviction is unspent
  • given an undertaking or been subject to an outstanding labour market enforcement order which relates in part to the National Minimum Wage
  • received a previous NoU within the last six years (unless it was under £500, withdrawn or subject to appeal)


Penalties for underpayment remain the same – 200% of the total underpayment specified in the NoU subject to a maximum of £20,000 per worker (there is a lesser % applied to arrears pre-April 2016). This must be paid within 28 days of the NoU.

The penalty is reduced by 50% if all the unpaid wages and 50% of the penalty is paid in full within 14 days of the NoU.

Criminal investigations will be used only in the most serious cases and where it can be shown to be in the public interest. In addition to non-payment of National Minimum Wage, this can also extend to action where the employer has:

  • intentionally delayed or obstructed investigators
  • failed to keep or preserve records
  • falsified records
  • failed to comply with a Labour Market Enforcement Order which can be made against those who ‘deliberately, persistently and brazenly’ breach labour laws and who have then either refused to give, or breached, an undertaking to avoid further breaches.

Naming and shaming

 The practice of naming and shaming was quietly abandoned at the end of 2018 after a string of cases involving high profile businesses who had inadvertently breached a technical reading of the rules.

For several years, we’ve seen a change in enforcement approach from a nudge in the right direction to much tighter enforcement. Now that measures have been taken to help businesses from accidentally falling into non-compliance, the practice of naming and shaming will resume, occurring more frequently than before. However, the government will also:

  • increase the arrears threshold for consideration of naming and shaming from £100 to £500 (although £100 will still apply where there is a history of non-compliance)
  • provide more information about the reason for breaches
  • publish an educational bulletin for employers, highlighting common reasons for underpayments occurring

Previously HMRC would refer employers to BEIS for a decision on whether they should be named and shamed either upon the issue of a case closure letter or at the end of any court proceedings which may be necessary to enforce compliance.

In cases where court action is necessary, this policy changes to a referral being made at the same time solicitors are instructed to take such action. This drastically reduces the delay in naming and shaming in these cases.

BEIS will send employers a ‘Notification of Naming’ letter informing them that they are under consideration for naming. Employers can then write in with reasons within 14 days as to why they should not be named and shamed. They will, however, need to show exceptional circumstances such as:

  • naming poses national security risks
  • naming would pose a risk of personal harm to an individual or their family
  • it’s otherwise not in the public interest

The policy document makes it clear that BEIS is unlikely to accept reasons such as the breach was inadvertent, or they relied on advice from a third party.

If an employer does not write in, or if their reasons are not accepted, they’ll be automatically named.

Salaried hours

In addition to its review of enforcement, the government is widening the definition of salaried hours workers. The new rules, which will come into force in April 2020, will:

  • allow additional payment cycles for salaried hours workers, including fortnightly and 4 weekly cycles
  • allow employers to choose the calculation year which is the best fit for them to help them monitor the hours worked by salaried workers
  • make sure salaried workers can receive premium pay without losing entitlement to equal and regular instalments

Got any questions?

National Minimum Wage enforcement is a complex and detailed part of Employment Law to get your head around.  And thanks to this ramped up enforcement update, it’s crucial to comply with National Minimum Wage rates.

That’s why having Citation’s expert HR and Employment Law team supporting your business is the perfect way to put your mind at ease and give you the peace of mind that you’re protected.

If you’re a Citation client and you’ve got any questions about how these updates could affect your business, remember you can contact our advice line 24/7 on 0345 844 4848.

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