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HMRC internal manual

National Minimum Wage Manual

Issuing notices of underpayment: summary of calculating penalties on a notice

Relevant legislation

  • National Minimum Wage Act 1998, sections 19A & 19B

Having introduced penalties in 2009, the government increased, incrementally, the rate of penalty imposed on employers who fail to pay at least the minimum wage to worker(s). The changes in the penalties and percentage rates means it is sometimes necessary to issue multiple notices of underpayment.

Summary of penalty calculation that applies to different pay reference periods

Period Pay Reference Periods Penalty calculation on a Notice of Underpayment (NoU)
1 Before 6 April 2009 No penalty to be included on a NoU.
2 Start on or after 6 April 2009 to 6 March 2014 … 50% of total underpayment
  NMWM13220 Minimum £100 for the NoU
    Maximum £5,000 for the NoU
3 Start on or after 7 March 2014 to 25 May 2015 100% of total underpayment
  NMWM13222 Minimum £100 per NoU
    Maximum £20,000 per NoU
4 Start on or after 26 May 2015 to 31 March 2016 100% of total underpayment
  NMWM13224 Minimum £100 per NoU
    Maximum £20,000 per worker
5 Start on or after 1 April 2016 200% of total underpayment
  NMWM13226 Minimum £100 per NoU
    Maximum £20,000 per worker

Distributing a penalty on notice(s)

Summarised at NMWM13219

All arrears before 6 April 2009

Do not include a penalty if all the arrears for all the workers named on the notice of underpayment are wholly for pay reference periods starting before 6 April 2009.

Any arrears for pay reference periods starting before 6 April 2009 are too old to be included on a notice of underpayment (NMWM13140)

Arrears from 6 April 2009

A notice will include a penalty whenever there are arrears for pay reference periods starting on or after 6 April 2009.

The penalty will always be based on the underpayment shown on the notice.

Penalties will be due  even when the employer has paid the original underpayment for the pay reference period but has not taken into account a subsequent increase in national minimum wage rates. In such cases the underpayment associated with those arrears is nil and the minimum penalty will apply. (see NMWM13160 for more information)

 

Issuing multiple notices

A notice of underpayment with pay reference periods starting before 26th May 2015 cannot contain penalties using different percentage rates.

This means that where an investigation identifies underpayments in respect of pay reference periods which span 7 March 2014, more than one notice will need to be issued to cover periods before and after 7 March 2014. (see links below)

 

There may be occasions where it will be necessary to issue more than one notice of underpayment to the employer, for pay reference periods:

Starting on or after 6 April 2009 to 6 March 2014 see NMWM13220

Starting on or after 7 March 2014 to 25 May 2015 see NMWM13222

Starting on or after 26 May 2015 to 31 March 2016 see NMWM13224

Starting on or after 1 April 2016 see NMWM13226