National Minimum Wage (NMW) continues to be a high-risk area for many employers due to its complex rules and HMRC’s strict enforcement approach.

HMRC’s enforcement activity has returned to pre-pandemic levels and lots of employers who were subject to a HMRC NMW review between 2016 and 2018 are now being subject to a follow up HMRC review.

The 2023 NMW rates will come into effect from 1 April 2023 and the five NMW bands will increase by an average of c.10% from the current 2022 rates – this is the largest average increase across all bands since its introduction in 1999.

The significantly increased rates bring more and more workers (grades) closer to the NMW figures, given employers are struggling to provide inflation-matching pay increases.

What to expect from a HMRC NMW review in 2023

Risk areas

HMRC NMW reviews will continue to focus on the main risk areas – working time, salary sacrifice and deemed deductions (e.g. clothing requirements) – however we are also seeing, despite a change to the rules to make compliance less complex, increased issues arising due to NMW work types.

Changes to the ‘salaried’ work type were introduced in April 2020, resulting in more workers meeting the ‘salaried’ work conditions. Although this can be beneficial in certain circumstances, it is not always the case and compliance with the various aspects of salaried work can be extremely complex for employers to get right.

Due to the pandemic (and the associated pause in NMW compliance reviews) we are only just beginning to see HMRC’s approach to enforcement of NMW work types. Rather than simply determining whether a worker is ‘salaried’, ‘time’, ‘output’ or ‘unmeasured’, we are seeing HMRC delve further into the detail to establish whether employers are following the strict letter of the rules (particularly for ‘salaried’ work – tracking of hours / cumulative hours checks, NMW calculation year etc.). If this is new or news to you then please do get in touch.

Closing a NMW review

Before the pandemic, there was some latitude for agreeing a commercial and efficient way of bringing a review to a close, such as self-correction and a suitable date for issuing the final Notice of Underpayment (NoU) so that an employer could make any payments within 14 days (to benefit from a 50% reduction in penalties).

However, we have recently seen HMRC shift to a more rigid and stricter approach by not allowing any flexibility in the NoU or agreeing a suitable date for issue.

Employers should be aware of this shift in approach when undergoing a NMW review and bear this in mind even at the start of a review when agreeing risk areas or other points such as method of remediating workers.

How can Deloitte support?

Deloitte’s Fair Pay specialists have lots of experience supporting employers with NMW compliance and helping employers navigate and manage HMRC NMW reviews. Please visit Deloitte’s dedicated Fair Pay webpage or contact:

Kathryn Dooks - 020 7303 2894

Helen Kaye - 0113 292 1316

Chris Robson - 0121 695 5958

Amy Douthwaite - 020 7303 3486

Samantha Mannall - 020 7007 0287

Ben Baldwin - 0113 292 1447

Content from the Deloitte Legal blog can now be sent direct to your inbox. Choose the topic and frequency by subscribing here.