National Minimum Wage: Time for the Restaurant Owners to Take Action

HMRC recently released their latest list of businesses found to be in breach of the National Minimum Wage (NMW) Regulations. Each employer named on the list has had to reimburse staff for the underpayments and pay HMRC penalties of up to 200% of the underpayment.

Several of the businesses named have made NMW errors as a result of a reinterpretation of the legislation by HMRC. Any business with employees paid at or near NMW rates now needs to take action to protect their revenue and their reputation. 

Employers at risk from a change in policy

The High Street group Wagamama topped the list of publicly-shamed businesses. HMRC revealed that they owed in excess of £130,000 to over 2,600 employees and the story has been picked up by newspapers, the BBC, and other media outlets. As might be expected, the company has come in for criticism as a “bad employer”.

Wagamama’s simple mistake was to ask employees to wear black jeans or a black skirt to work. Employees were free to purchase any brand of clothing from any retailer they chose - they didn’t have to purchase it from their employer. This is a scenario that very many hospitality operators will be familiar with in their own businesses.

Until a couple of years ago this policy would not have raised eyebrows. HMRC’s view now is that this requirement to wear a particular style, colour or brand of clothing constitutes a dress code. If the cost to an employee of complying with that dress code means that their level of pay will fall below the legal minimum (currently £7.50 per hour rising to £7.83 from 1st April), a breach of the statutory NMW rates now exists.

Hospitality businesses should remember that NMW is calculated on basic or house pay only and it makes no difference if, or how much, tronc may be paid on top of basic pay.

Eye-watering penalties

The penalties for breaching NMW rates are severe. Employers will be required to reimburse all affected staff from the last six years (including leavers) using today’s NMW rates rather than the (lower) rates that would have applied at the time. On top of this, penalties are charged at a rate of up to 200% of the underpayment.

As we have seen today, businesses will be publicly named and shamed whenever the total underpayment exceeds £100. Finally, in the worst cases, a risk of criminal prosecution exists.

More areas of risk

Clothing is not the only area currently being targeted by HMRC. Other common issues include:

  • Staff paying a deposit for employer-provided clothing, locker keys, swipe cards and similar which is returned when they leave or return the item
  • Shift pay rates which do not reflect the actual hours worked (and bearing in mind that the average duration of a shift will often vary depending on which service and which days of the week an employee is rota’d for)
  • Staff working through breaks, working longer hours than in their contract, or where no record of time worked is maintained
  • Staff purchasing items from their employer (such as drink) where the cost is recovered through payroll and the employer makes no profit
  • Contracts of employment for salaried staff which are not worded correctly for NMW purposes
  • Staff “living in” where rent is paid to the business through payroll where:
  • the rent is in excess of the permitted offset rates, or
  • the employee has further deductions from pay in addition to rent to cover utilities, cleaning and similar.

Taking action

All businesses with staff paid at Minimum Wage rates should now review their processes, policies, procedures and record keeping to make sure that they are not fined and publicly named by HMRC.

The costs and reputational risk of overlooking this are too severe to ignore.

AIR’s tax and accounting Partner, WMT, provides help and advice on meeting the National Minimum Wage requirements or responding to a notice of underpayment. Contact WMT’s employment tax specialists Peter Davies or Rob Ennis on 01727 838255 or email

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