National Minimum Wage - the compliance challenge

Paying workers at least the National Minimum Wage (NMW) sounds straightforward but, in practice, it can be anything but. With the government announcing significant increases in the National Living Wage (for those aged 21 and over) and NMW rates from 1 April 2025, alongside significant employer National Insurance contribution increases in the Budget, many organisations cannot afford to pay their staff at rates above the statutory minimum.

This leaves them facing a financial balancing act which can lead to unintentional underpayments, putting organisations at risk of penalties of up to 200% and reputational damage through being publicly named if HMRC identify any breach.

What can social housing employers do to ensure compliance?

In our experience, many employers rely heavily on their payroll software to identify any potential NMW underpayment issues, but many systems are not programmed to apply the complex NMW rules.

Here are some risks, which are commonly not picked up from payroll, which BDO has seen in the social housing sector:

Staff accommodation

This can often be provided to help workers who would otherwise find it difficult to rent a property, e.g. those coming to the UK under a sponsored visa route. The NMW rules are drafted widely in this area given their aim of protecting employees, and rent deductions may trip up even well-meaning organisations.

Dress code/uniform

Many employers like their workers to wear specific clothing to meet a dress code/uniform requirement or for items such as PPE and will have a policy detailing this. While it does not go against the rules to have a dress code, if a worker purchases items to meet the uniform requirement and this is not reimbursed by their employer, the cost of the purchases will reduce their effective NMW pay.

Working time

In practice, monitoring how an employee’s time is split between being 'available for work' and 'actually working' remains a challenge and can lead to potential underpayments.

Add to this the administrative challenge of tracking hours for staff who may work irregular shifts across various locations, and it becomes clear why compliance can be a minefield for many employers. HMRC are now using technology to review travel time in their enquiries, so it is vital employers find robust ways to monitor actual working time.

There are, of course, many ways to manage your compliance, both technological and with old style systems, but no matter what systems you use, having an impartial review is always a good way to spot any shortcomings and manage down your risks.

How can BDO help?

BDO has a team of ex-HMRC NMW Officers who now support clients with pro-active risk reviews to identify areas of potential underpayments risk, as well as reviewing and amending processes and policies to provide more robust compliance. We also support many clients with complex HMRC NMW enquiries.

If you would like support with your NMW compliance, please contact Simon Thurston or Siobhan Waters.