Legal lowdown: Are you paying staff correctly?

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With several big firms being fined for failing to pay the minimum wage, it's time to check your processes

Argos has been forced to back-pay wages to more than 37,000 current and former workers after an HMRC investigation. Sainsbury's, which owns the company, admitted that staff had not been paid for attending briefings before their shifts started and were also required to undergo security searches outside their working hours.

Last year Sports Direct had to back pay workers for spending time in security checks unpaid.

The National Minimum Wage (NMW) is enforced by HMRC, which is usually initiated by a complaint from workers or a third party. However, officers also have the power to carry out inspections at any time without providing a reason, and can require employers to produce records and other information or access to determine the level of pay received by workers.

The enforcement measures available to HMRC include serving notices of underpayment, civil penalties, "naming and shaming", recovery of underpayments, and criminal prosecution.

The NMW is a specified minimum hourly rate of pay that employees, casual workers and agency staff are all entitled to be paid. From 1 April 2016 there are five different rates of NMW for different categories of worker, including the National Living Wage for those aged 25 or over and an apprentice rate.

Whether an individual has received the NMW will depend on their average hourly rate over a given reference period. It is necessary for employers to divide the total remuneration received in any given pay reference period by the total number of hours worked in that period.

The hours that an employer must pay a worker the NMW for depends on the type of work they do.

Work done is categorised as either:

  • Time work – work is paid by reference to the time that a worker works, for example hourly-paid work.
  • Salaried hours work – where the employee is paid for a fixed number of hours work per year, and is paid an annual salary in equal weekly or monthly instalments.
  • Output work – work that is paid according to the worker's productivity, for example piecework.
  • Unmeasured work – covers workers who do not have set hours or an annual salary and who are not paid according to what they produce.

Employers must be vigilant and recognise that certain activities, even though they are not work as such, may still count as working time for the purpose of NMW legislation. Case law concerning the NMW legislation suggests that where a worker is paid on an hourly basis, any time spent at their employer's disposal is likely to be deemed as working time for the purposes of calculating whether the worker is being paid the NMW.

Given the potential exposure on NMW matters and range of enforcement options employers must ensure that they are clear on their NMW obligations.

Caroline Acton is a solicitor at ESP Law, the providers of HR magazine’s HR Legal Service

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The Legal Advisory Team

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