HMRC has lost a challenge on national minimum wage enforcement. 

We have recently seen a new chapter of the national minimum wage enforcement, with fines imposed on large retail and restaurant chains for NMW breaches. It is the intricacies of the national minimum wages regime that are once again under review following a case involving Middlesbrough Football Club vs. HMRC.

In a Tribunal case concluded earlier this month, Middlesbrough FC challenged HMRC’s claim that the value of the football season tickets offered to employees must be deducted from the employees’ pay and be taken into account when arriving at the amount of hourly wage. The tribunal disagreed with HMRC.

The key factors in favour of Middlesbrough FC were:

  • a deduction was made at request of employees and for their own benefit (they could spread the cost of the season ticket over the course of the year rather than pay for it in one lump sum)
  • employees were not compelled to buy a season ticket
  • watching football was not a requirement of the job.

Although the ruling is likely to provide some reassurance to employers, it is hoped that the recently announced consultation will result in further amendments to the NMW legislation, which in its current form may sometimes paint a confusing picture.

The legal basis for NMW is provided in the National Minimum Wage Act 1998  and the Employment Act 2008 .

 Who NMW applies to

NMW provisions apply to workers and employees. Per section 54 of the 1998 Act, workers and employees are individuals working or training (as an apprentice), under a contract of employment or any other contract (express or implied, in writing or oral). Individuals on a work experience placement or internship may be protected under the NMW legislation if they have a relevant contract. However, government training schemes, work experience as part of a course and volunteering are outside the NMW provisions.

NMW provisions apply equally to salaried individuals. In this case the monthly pay is divided by the average number of hours worked in a month to calculate the hourly rate.

 How NMW is calculated

The national minimum wage (including the national living wage) is calculated as an average hourly wage in a relevant reference period. A reference period is the interval period at which a worker or employee is paid, for example if a worker is paid weekly, the reference period will normally be one week. The reference period cannot be longer than one month.

Any shortfall between the actual rate paid and the legislated minimum rate creates arrears, which must take into account the time that has elapsed since the underpayment. If the current rate of minimum wage is higher than the rate that applied at the time of the underpayment, the arrears are calculated by reference to the rate currently in force by reference to the age the worker was when they were entitled to NMW. For example, an individual who qualified for NMW five years ago as a 17 year old would be entitled to the current NMW applicable for a 17 year old if the arrears were settled today.

Illustration of arrears calculation

An employer paid a 30 year old worker £200 for a 40 hour working week in 2012. In February 2018 the employer realises that the worker was underpaid at the time.

Relevant NMW  rates are: 

  • 2012  – £6.19
  • 2019 – £8.21

 Arrears are the higher of:

  • the underpayment, ie the difference between the amount the employer should have paid at the time and the amount actually paid
  • the amount calculated using the arrears formula taking into account the time the length of time that has elapsed since the underpayment.


Step 1
: Multiply the correct rate during the underpayment reference period by the hours worked: £6.19 x 40 = £247.60

 Step 2: Take away the amount you paid the worker from the amount they should have been paid in step 1: £247.60 – £200 = £47.60 underpayment

 Step 3: Divide the underpayment by the minimum wage rate which applied at the time of the underpayment and multiply by the December 2010 minimum wage rate: (£47.60÷ £6.19) x £8.21 = £63.13.

 The worker is entitled to arrears of £63.13

NMW calculator is available.

Which amounts count towards wages?

Amounts which count towards wages include bonuses, other monetary incentives and employment related expenses paid by employee and not reimbursed by employer. Amounts which do not count towards wages are:

  • loans
  • advances of wages
  • pension payments
  • lump sums on retirement
  • redundancy payments
  • rewards under staff suggestions schemes
  • reimbursed employment related expenses incurred by employee
  • tips, gratuities, service charges and cover charges
  • additional pay as a result of ad hoc overtime, weekend, bank holiday or night shift work
  • work allowances, for example for work in unsocial hours or in a particular geographical area

Further guidance is provided by HMRC .

How NMW is enforced

Enforcement of national minimum wage is carried out by HMRC. In most cases, a civil investigation is carried out for non-compliance, although criminal investigation is possible for persistent non-compliance, refusal to cooperate and in case of wider public interest cases.

During an investigation HMRC can enforce access to relevant information, including removal from employer’s premises of physical files and documents (employers, agents and advisers should be issued receipts), removal of a copy of electronically available information in a relevant format (original digital documents cannot be removed) or meetings with employees.

HMRC has discretion to decide to what extent and which enforcement measures are used, if at all, although typically all or a combination of the following will apply:

  • issue of Notice of Underpayment for arrears in relation to some or all employees, including former employees
  • naming the employer publicly
  • imposing financial penalties
    • of up to 200% of arrears of the total underpayment  for all of the workers specified in an notice, relating to pay reference periods commencing on or after 1 April 2016 (periods before this date were subject to lower penalties). This is subject to a cap of maximum £20,000 per worker
    • reduced by 50% if  the unpaid wages and the penalty are paid in full within 14 days
  • instruction to self-correct
  • issue of Notice of Underpayment if employer does not self-correct and naming the employer again
  • issue of Replacement Notice in case of a new discovery in relation to an employee subject to the original notice.

Detailed information on the national minimum wage can be found in HMRC’s  National Minimum Wage Manual.

Article from ACCA In Practice