National Minimum Wage – Is your hotel ready for HMRC?

The UK’s National Minimum Wage (NMW) is hardly new. In fact, it has been with us for nearly 20 years, although it was rebadged for workers over 25 as the ‘National Living Wage’ in 2016 ( the same principles apply). So why is the NMW appearing in the news more and more these days?

HM Revenue and Customs (HMRC) has received a significant rise in its budget for NMW enforcement and so more and more businesses are being audited for compliance. There is also a NMW awareness campaign being run by the government. You will also have seen increased press attention around the naming and shaming lists published by the Department for Business, Energy and Industrial Strategy (BEIS) which has ‘outed’ some well-known retail and hospitality sector businesses that have been fined by HMRC as a result of breaching the NMW regulations

The annually increasing NMW rate has been one of the reasons for this activity. We are now seeing more employers paying at or around the NMW rate than ever before. And this is especially true across the hotel industry.

In understanding the process of calculating NMW in your business, it is not as simple as “do you pay the correct NMW rate for the correct age bracket per hour of a shift?” In fact, your employment practices and policies could be causing you to unconsciously breach the NMW regulations and could be taking some of your employees below the NMW. Unfortunately, ignorance of the detail of NMW regulations (and how HMRC will calculate whether an employer is paying below NMW) is not a defence.

Risk areas for hoteliers

We have seen a number of areas where employers, even when they thought they were NMW compliant, have learnt that in reality they were paying their employees below the NMW. Such areas of business operations, common to a number of sectors but particularly hospitality, are:

• Work uniform – Where employees have to supply their own uniforms (or any part of them) then the cost of purchasing should be deducted from their pay when calculating NMW. Employers should be aware that ‘uniform’ is defined very broadly with regards to NMW. If, for example, you provide a branded T-shirt, but your employee has to provide their own black trousers and shoes, the cost of these will be considered a deduction for NMW purposes. What this means is that the employee must receive the NMW after that deduction.
• Accommodation – If you provide accommodation for your employees you can only charge £49 per week as rent, without it impacting on NMW. If you charge more than this, the additional amount will count as a deduction from the NMW rate. As will any charges for utilities or deposits relating to the accommodation.
• Tips – Any sums received as tips cannot count towards the calculation of NMW pay.
• Working time – An employee’s ‘working time’ might seem a straightforward thing to calculate – the time spent on shift doing the job. But additional activities can also count toward working hours. If an employee has to go through any checks or undertake any mandatory steps before they can start or leave work, such as security searches, team briefings, getting changed for work on site or drug and alcohol tests, then the time spent going through these processes will also be working time and should be paid at the NMW rate. Further, if employees at any time work through an unpaid break, this becomes working time for which they should be paid NMW.
• Salary sacrifice – where an employee is a member of a salary sacrifice scheme, including ones for the payment of pension or childcare vouchers, then they must receive the NMW rate after this deduction has been made.
• Annualised hours contracts – HMRC describe these as “salaried hours” contracts and they must contain an “ascertainable” number of hours that the employee is expected to work in the year, this should be expressed by the number of hours expected per month or year. It should not refer to hours per week, as there are 52.14 weeks in a year and therefore the yearly number in those contracts is not “ascertainable”. If the contract is not truly a salaried hours contract, then any pay should be per hour worked in the relevant pay reference period, it cannot be averaged out over the year. So where someone works a high number of hours in any one pay reference period, for example to deal with seasonal demand, they would need to receive NMW pay for each hour.
• Record keeping – It is a criminal offence under the NMW regulations not to maintain proper records showing that the NMW has been paid in your business for at least the last three years. There is also a presumption that an employee has not been paid the NMW unless an employer can prove to the contrary and so this is an added incentive to ensuring proper records are kept.

Getting it wrong; setting it right

So what happens to a hotel business that suddenly finds it is under investigation by HMRC over its handling of NMW pay? In the first instance, there could be considerable embarrassment and damage to the brand’s reputation.  If HMRC issues an employer with a ‘penalty notice’ stating that they have paid employees less than the NMW, the naming and shaming – and inevitable media interest – would be extremely unwelcome.

Secondly, HMRC will request an order to the business to make arrears payments to all employees and ex-employees who have been underpaid, going back six years, and a correction of any breaches going forwards.

Third, a penalty of up to 200% of the total underpayment to all workers could be imposed on the company. This penalty is subject to an overall cap of £20,000 per relevant employee but if your business in the UK is large and you have a significant number of employees, affected over years, this has the potential to become a major fine.

Compliance with the NMW regulations is with us to stay. HMRC now have wide investigative rights, including the right to interview your staff and remove documentation, sometimes without notice. It is therefore something hotel businesses should be proactively looking at now so that they can address any potential problems before HMRC come knocking. An audit of working and pay practices is advisable to identify any issues and so steps can be taken to address problems sooner rather than later.

This article first appeared the in the June issue of Hotel Owner.