Gary Davies, Senior Executive Officer, HMRC

Although calculating wages using the National Minimum Wage (NMW) hourly rate may seem straightforward, there are several pitfalls that an employer can fall into without realising. Gary Davies from the NMW team at HMRC explains the importance of understanding the rules and where to look for more guidance and support to help you get it right.

Gary Davies from the NMW team at HMRC explains the importance of understanding the rules and where to look for more guidance and support to help you get it right.

When I first joined HMRC’s National Minimum Wage (NMW) team all those years ago, I wondered “how complicated can it be”? I realise now how naïve I was!

I’ve been leading minimum wage compliance checks for many years, and there are three things I’ve learnt in that time:

1. Working out the minimum wage isn’t always simple
2. Mistakes are easy to make
3. Employers don’t know always know they are making mistakes

And that’s as true in childcare as it in any other sector.

All workers are entitled to the minimum wage, and the fundamental parts to making sure you are paying, or being paid correctly, are calculating time worked and pay rates.

Calculating time worked

The NMW is paid as an hourly rate for time worked, but sometimes time worked can be a grey area.

For example, if you are asking your staff to arrive ten minutes early to make sure they are ready to start on time – they are entitled to be paid for this time. Why? Because you are asking your employee to be at their place of work for an agreed time.

Coming in before a shift isn’t the only area where mistakes can be made when calculating time worked, training is another. All time spent training should be paid at NMW rates – even if the member of staff completes the training at home, they still need to be paid for this time.

Calculating pay rates

Paying additional payments

Many employers think they are paying more than the minimum wage. It could be paying for a first aider allowances, overtime premiums, all of these additional elements added onto their basic pay. The problem, however, is that a lot of these elements cannot be included in minimum wage calculations. If there are other issues like unpaid working time or deductions, a lot of employers think everything is fine because they are paying more than the minimum wage. Actually, they are not. They just don’t realise it.

Deductions

A lot of employers think deductions are fine, even more so if the worker voluntary agrees to it. Deductions actually reduce pay for minimum wage purposes. A nursery could offer a reduced childcare rate for their staff and deduct it in their pay. The workers are benefiting from the arrangement, an employer would clearly think this is completely fine. Unfortunately, no. National Minimum Wage is protective legislation. Even though workers could benefit from the arrangement, the deduction would still reduce pay if the employer has use and benefit of the deduction. It doesn’t even matter if the employer is making a loss, they still have use and benefit of the deduction.

Expenses

If an employer requires workers to wear a dress code and workers are spending money on clothes, that cost will reduce minimum wage pay.

If you’re paying workers on or close to minimum wage, there’s a good chance there will be an underpayment if there are deductions or expenses.

Childminders

If you are a childminder you are deemed to be self-employed, so minimum wage legislation does not apply to you.

However, paying the minimum wage will apply if you are paying for assistants to help you.

Sometimes, childminders may deem their assistants as self-employed, but it all depends on what happens in practise. If it transpires that your assistants are not self-employed and you’re not paying them the correct NMW rate, they could be underpaid.

Click here for more information about someone you’re paying is actually self-employed:

Further advice and guidance and how to report concerns

If you’re an employer (e.g., at a nursery, pre-school or you are a childminder employing assistants), the best place to go for the definitive guidance here.

You can also speak to ACAS on 0300 123 1100 for free, impartial and confidential advice.

If you think you’ve accidentally underpaid your workers, you will need to calculate and pay any underpayments to all workers affected and change your processes going forward. If you do this before HMRC starts an investigation, you will not be penalised or publicly named.

If you’re a worker in the childcare sector and you think you could be underpaid, you should speak to your employer in the first instance to get the matter resolved. If they do not take corrective action, you can report your concerns to ACAS using this link, or call them on 0300 123 1100. HMRC will then investigate the company and help you receive any arrears due. Reporting concerns can be done confidentially.