Reference period and enforcement

Reference period

Wages can be averaged over a reference period to establish whether the NMW has been paid. This means that workers need not necessarily be paid the NMW for each individual hour they have worked, but they must receive the minimum rate as an average over the period concerned.

The pay reference period is the actual pay period, such as one day or one week. A maximum reference period of one calendar month applies, irrespective of whether a worker is paid at less frequent intervals, e.g. every three months.

Normally, annual bonuses count towards the NMW calculation only in the pay reference period in which any bonus payment is made. However, where the pay reference period is one month, 1/12th of the bonus payment can go towards the NMW calculation for the previous month, with the rest attributed to the month in which the award is payable.

Enforcement

The National Minimum Wage Act 1998 stipulates that a worker who receives less than the minimum wage during any pay reference period is entitled to additional money to make up the shortfall - that is, the difference between what was paid and what they were entitled to under the legislation.

If an additional payment to cover the deficit is not forthcoming, a national minimum wage compliance officer can serve an 'enforcement notice' requiring the employer to remunerate the worker at a rate equal to the NMW.

If the employer fails to comply with an enforcement notice, a compliance officer can, on behalf of any worker, make a complaint to an employment tribunal for wrongful deductions from wages.

The officer can also serve the employer with a 'penalty notice' that requires the organisation to pay a financial sum to the Secretary of State. Offending employers can also be 'named and shamed' by having the details of the underpayment published. Compliance officers can issue notices that cover both former and current workers.

Under the Small Business, Enterprise and Employment Act 2015, the penalty for underpaying the national minimum wage is 100 per cent of the underpayment owed to each worker, up to a maximum of £20,000 per worker (previously the entire fine was capped at £20,000). From the introduction of the NLW in April in 2016, the penalty increased to 200 per cent of the amount owed unless the arrears are paid within 14 days.

Minimum wage naming and shaming

From 6 April 2020, organisations who have been found to not pay staff at least the minimum wage are included on a quarterly list by the Department for Business, Energy and Industrial Strategy (BEIS). Unlike previous schemes, organisations need to owed arrears of at least at least £500, increasing from £100. Naming and shaming returned following a two-year pause to assess if changes needed to be made to account for honest errors and make the process fairer. 

The government will take mitigating factors into account. For example, organisations that offer salary sacrifice schemes no longer face financial penalties if the pay falls below the minimum wage as a result. 

Additionally, workers who are paid daily or hourly can be classed as salaried workers. Organisations can work to avoid being accidently caught out by:

• allowing additional payment cycles for salaried workers
• permitting organisations to choose the appropriate ‘calculation year’ to help them monitor hours worked by salaried workers
• ensuring salaried workers are able to receive ‘premium pay’ without losing their entitlement to equal and regular instalments.

The most recent of Naming and Shaming, round 17, identified underpayments of nearly £2.1 million. Employers were fined £3.2 million for this breach that left over 34,000 workers underpaid.