HMRC is targeting the care sector: is your care business National Minimum Wage compliant?

The National Minimum Wage (NMW) is about to increase and HMRC continues to target the care sector for NMW inspections and enforcement action. It is critical that providers ensure they are up to speed with NMW rules, remembering that the NMW is not a pay rate; it’s a calculation! And a complex one at that.

Compliance with the NMW is assessed in each pay reference period. With most care staff being hourly paid and paid monthly, the reference period over which their pay is assessed would be a month. When carrying out NMW assessments, providers often include ineligible payments. For example, overtime enhancements and shift premiums cannot be included, neither can on-call or sleep-in allowances. Providers also often fail to account for all working time within NMW calculations. For example, not accounting for working outside rostered time (e.g. to do a handover), training time, travel time or waiting time between home care assignments.

Care providers often provide accommodation to workers, particularly those employed under a sponsor licence. Being the employer and providing accommodation engages the Accommodation Offset rules which provide that any amount deducted from pay as rent (including the cost of utilities) that exceeds the Accommodation Offset Allowance of £69.93 per week (increasing to £74.62 in April) acts as deduction for NMW purposes.

We have seen providers purchase properties for worker accommodation on the mistaken understanding that they can charge a market rate rent without it having any impact on NMW compliance. Unfortunately, that is not the case. In most cases, deducting a market rent from a care worker or senior care worker’s monthly pay would bring pay in that pay reference period below the NMW.

Making deductions from pay are permitted if you have a contractual right to make the deduction, failing which it would be unauthorised (so employment contract drafting is important). However, some deductions will reduce pay for NMW purposes and others will not. For example, deducting DBS costs will not reduce pay for NMW purposes (assuming you have a contractual right to make the deduction), but making a deduction for the provision of uniform will.  It is essential to fully understand how each deduction you make is treated under the NMW rules to ensure that by making a deduction you are not dragging pay below the NMW.

Many of the cases we are dealing with involve sponsored workers, which has the added risk that if NMW non-compliance is discovered, it could result in your sponsor licence being revoked and you having to dismiss all sponsored workers. In every case we have dealt with recently it has been an unintentional misapplication or misunderstanding of the rules, but that doesn’t provide any defence.

With sponsored workers, providers are often funding many additional costs to relocate, settle, and get them work ready in the UK. However, they often believe that provided they put a contract in place to recover these costs through deductions from pay, they are compliant and permitted to do so. However, that won’t necessarily be the case and an assessment of how HMRC would treat each type of deduction is required to determine whether it would reduce pay for NMW purposes.

To ensure compliance with the NMW and potential scrutiny from HMRC, you should consider conduct an audit of your pay arrangements and any deductions made from pay. Also ensure that you maintain accurate records of hours worked and payments made in any easily accessible and digestible format that can be provided to HMRC to prove your compliance with the NMW.

If you need help navigating the complexities of NMW compliance or are facing an HMRC inspection, we can provide expert guidance and help you implement best practices to ensure compliance.