Government names and shames over NMW

Last week the government published a list naming and shaming over 200 employers for failing to pay the National Minimum Wage (‘NMW’) to 63,000 workers, amounting to a combined underpayment of almost £5 million. Among them were some major high street retailers including WH Smith, M&S, Argos and Lloyds Pharmacies, all of which stated unintentional errors in calculation as the cause. This highlights the difficulties in calculating the NMW, even for employers with significant administrative resources. Despite acknowledging that not all NMW underpayments are intentional, the government maintains that that there is no excuse for underpaying workers.

The NMW Regime

Since 1999, workers have had the right to be paid the NMW. The NMW is increased annually, on April 1, and is currently comprised of five separate hourly rates, divided as follows:

  • apprentices
  • workers under 18
  • workers aged 18–20
  • workers aged 21 and 22, and
  • workers aged 23 and over (the ‘National Living Wage’).

The law makes distinctions between types of work, the two most commonly utilised categories being salaried and payments on an hourly rate. Identifying the relevant type of work is key to correctly calculating the NMW, as the methods differ for each.

If employers fail to pay the NMW, individual workers may bring a claim in either the Employment Tribunal or the Civil Court. Furthermore, HM Revenue and Customs, as enforcement agency for NMW purposes, can issue notices of underpayment, impose fines on top of repayment of the shortfall in wages and publicly ‘name and shame’ employers who fail to pay the NMW. The very worst cases, such as persistent non-compliance or obstructing HMRC investigations, may even give rise to criminal sanctions.

Common Breaches of NMW

Wage deductions or employee payments for uniform:

WH Smith and Lloyds Pharmacy both blamed misinterpretation of the regulations regarding uniforms for their NMW underpayments of £1 million and  £900,000, respectively. Where uniform is a specific requirement for the role, employers should take care to ensure that any payments from the employee or deductions from their wages are accounted for, as these will reduce their pay for NMW purposes. This will also be the case where such payments or deductions are made for other requirements specific to the role, such as tools or equipment.

Calculating hours worked:

Tesco was named and shamed in 2017 for underpaying 78,000 workers by over £5 million when it failed to pay staff for routines (for eg a requirement to attend before the shift started for checks etc) it required of workers before and after each shift. To avoid such underpayments, employers should account for any extra hours worked.

The same year, John Lewis repaid £36 million to workers after its policy of “pay averaging” led to NMW underpayments where staff worked more hours in a month, despite the fact that the employees would be overpaid in months when they worked fewer hours. This was because the average was calculated on an hourly rate rather than salaried hours. With specific regard to pay averaging, employers should engage workers on a salaried basis to prevent pay slipping below the NMW where workers are required to work additional hours. This highlights the importance of calculating the NMW on basis of the correct type of work.

Salary sacrifice schemes:

In 2017, Tesco announced it would reimburse £9.7 million in underpayments of the NMW to 140,000 workers after it failed to account for contributions to childcare, pensions and cycle to work schemes. The use of such schemes, where employees sacrifice a portion of their salary in return for non-cash benefits in kind, are popular with employers for the savings in lower national insurance contributions. However, employers should take care not to reduce workers’ pay below the NMW.

Failure to increase rates:

A review of employees’ pay rates should be undertaken in March each year, ahead of the annual increase in the NMW in April, in order to take action for those whose wages will fall below the new rates. Likewise, employers should also pay attention to the ages of workers younger than 23 and the completion of apprenticeships, or  the completion of the first year of an apprenticeship for apprentices 19 or over, to ensure their wages do not fall below the NMW when they move up to a different rate.


The law surrounding the NMW is highly complex and the penalties for underpayment are severe, even where this is unintentional. However, developing an awareness of situations which may give rise to unintentional underpayment will allow employers to avoid being fined, or named and shamed for innocent errors whilst also ensuring that their employees are paid fairly for the work they do.

For further information, or to discuss any of the points raised in this update, please contact our Employment Group on 0118 977 4045 or

Darren Smith
Partner, Employment
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This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.

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