NMW/NLW Band Changes: Why Birthdays and Anniversaries Are a Payroll Risk You Might Be Missing

Most employers know that National Minimum Wage and National Living Wage rates normally change each April.

What is much easier to miss is that an individual employee's minimum rate can change during the year, even though nothing has changed within your normal payroll process.

A birthday can change the minimum rate somebody is entitled to.

So can reaching the end of the first year of an apprenticeship.

And if nobody is watching those dates, an employee can quietly drop below the legal minimum.

The National Minimum Wage rate can change mid-year

National Minimum Wage compliance is not simply a matter of updating your payroll software once a year.

Different minimum rates apply according to age and, in certain circumstances, apprenticeship status.

That means an employee's applicable rate can change when they move from one age band into another.

The same principle creates a particularly important risk with apprentices.

An apprentice who is aged 19 or over can receive the apprentice rate while they are in the first year of their apprenticeship.

Once they have completed that first year, they need to move onto the appropriate minimum wage rate for their age.

Why are these changes so easy to miss?

Payroll works to a timetable.

You may run it weekly or monthly, but the process is broadly predictable.

Birthdays and apprenticeship anniversaries do not follow that timetable.

If the only time somebody reviews National Minimum Wage rates is each April, an employee could move into another rate band in July and remain incorrectly paid for months.

It may only come to light when somebody reviews salaries, the employee queries their pay, an accountant notices it or the business undergoes an HR or payroll review.

By then, what began as an administrative oversight has become a back-pay problem.

“Payroll handles it” is not always enough

Payroll software can help enormously, but employers still need a process for supplying it with accurate information.

That is especially important where different people manage HR and payroll.

Perhaps HR knows that an employee is completing the first year of their apprenticeship next month.

Does payroll know?

Perhaps payroll has the employee's date of birth.

Is the system configured to identify when their minimum rate needs reviewing?

A compliance process should not depend on somebody remembering a birthday.

Build band-change dates into your HR process

The simplest approach is to identify employees who could experience a minimum-wage rate change and review that information regularly.

Rather than looking at this information once a year, review upcoming dates each month.

Ideally, HR and payroll should be working from the same information.

That gives whoever processes wages advance warning that a pay adjustment is approaching rather than discovering it afterwards.

For businesses taking on apprentices or younger employees for the first time, putting this process in place from the beginning is particularly important.

Swan HR also provides HR support for start-ups that want to get these systems right while they are still relatively simple.

What if you discover somebody has already been underpaid?

Do not simply correct their rate from the next payroll onwards and assume the problem has gone away.

The previous underpayment still needs dealing with.

The amount owed should be calculated, and the employee should receive the appropriate arrears.

It is also important to identify why the mistake happened.

• Was a date missing from the HR records?

• Did payroll and HR have different information?

• Was the employee incorrectly classified?

• Was there no trigger in place to review their rate?

Unless you fix the process behind the error, the same thing can happen again.

What are the consequences of getting National Minimum Wage wrong?

Minimum-wage underpayments can be serious even where an employer did not deliberately set out to underpay anybody.

Employers can be required to repay arrears and may also face financial penalties.

There is a reputational issue too, as employers that breach minimum-wage legislation can potentially be publicly named.

And importantly, an accidental administrative mistake is still an underpayment.

That is why having a reliable process is more important than relying on good intentions.

Could one birthday create a payroll problem in your business?

National Minimum Wage compliance often fails because of small details rather than deliberate decisions.

• A birthday.

• An apprenticeship anniversary.

• A spreadsheet that was not updated.

• Information HR knew, but payroll did not.

The solution is to build the trigger into your process before it happens.

As part of an HR audit, Swan HR can review areas such as employee information, payroll processes and record-keeping to identify risks that may otherwise be sitting unnoticed in the business.

For organisations looking for practical HR consultancy in London, it is a simple check that could prevent a much more expensive problem later.

Would your payroll system catch a band change before it became a back-pay problem?

If you are not sure, let's talk it through.

[Book a Free Consultation]