NMWM13219 - Issuing Notices of Underpayment: how to distribute penalties on notices: flowchart
Summary of the penalties which apply to different pay reference periods
| Period | PRPs | Penalty calculation |
|---|---|---|
| 1 | Before 6 April 2009 | No Notice of Underpayment (NoU) to be issued. |
| 2 | Start on or after 6 April 2009 to 6 March 2014\n(Any arrears that fall into period 2 are now too old to be included on a notice) | 50% of total underpayment |
| Minimum £100 for the NoU | ||
| Maximum £5,000 for the NoU | ||
| 3 | Start on or after 7 March 2014 to 25 May 2015\n(Any arrears that fall into period 3 are now too old to be included on a notice) | 100% of total underpayment |
| 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 |
| Minimum £100 per NoU | ||
| Maximum £20,000 per worker | ||
| 5 | Start on or after 1 April 2016 | 200% of total underpayment |
| Minimum £100 per NoU | ||
| Maximum £20,000 per worker |
NMWM13218 describes the rate of the penalty in various pay reference periods.
How to distribute the penalties are summarised in this flowchart and the examples referred to in the flowchart are below:
Key points to consider when preparing a NoU:
- In what pay reference period does the underpayment arise?
- What is the total underpayment; and does it exceed £20,000?
- Is the underpayment less than £100?
- Does the underpayment span two or more different periods of legislation?
- Is the amount of an underpayment for any individual worker equal to or exceeding £20,000?
- When preparing multiple Notices of Underpayment ensure that the collective penalty per worker does not exceed £20,000.
Here are four examples to illustrate the approach set out in the summary table in Appendix 1.
Example 1
An employer has underpaid a worker for pay reference periods starting 1 June 2015 and ending 31 July 2016.
The underpayment arises in period 4 and ends in period 5.
The total underpayment is £50 made up of:
| Worker | U/P | Period 4 | Period 5 |
|---|---|---|---|
| 1 | £50 | £20 | £30 |
One NoU will be issued.
As the total underpayment spans periods 4 and 5 (£50) and is less than the minimum penalty of £100 per NoU, the underpayment will attract the minimum penalty of £100.
In this scenario the employer will receive one NoU and one penalty of £100.
Example 2
An employer has underpaid 2 workers for pay reference periods starting 1 August 2014 and ending 31 May 2016. The underpayment for all workers arises in period 3 and ends in period 5.
The total underpayment is £27,000 made up of:
| Worker | U/P | Period 3 | Period 4 | Period 5 |
|---|---|---|---|---|
| 1 | £13,000 | £10,000 | £1,000 | £2,000 |
| 2 | £14,000 | £11,000 | £1,000 | £2,000 |
Two NoUs will be issued.
NoU 1
One will be issued for all workers with underpayments arising in period 3. As the total underpayment in period 3 is £21,000, the penalty will be calculated at 100% or the underpayment in a single NoU is capped at the maximum of £20,000.
NoU 2
A second NoU will be issued for all workers with underpayments arising in periods 4 and 5. As the total underpayment in periods 4 and 5 is £6,000, the penalty will be calculated as:
100% of the underpayment arising in period 4; i.e. penalty = £2,000
200% of the underpayment arising in period 5; i.e. penalty= £8,000
In this scenario, as both workers do not exceed £20,000 across all three periods no adjustment is required and the employer will receive two NoUs and two penalties totalling £30,000.
Example 3
An employer has underpaid 2 workers for pay reference periods starting 1 June 2015 and ending 31 July 2016. The underpayments arise in period 4 and end in period 5.
The total underpayment is £12,000 made up of:
| Worker | U/P | Period 4 | Period 5 |
|---|---|---|---|
| 1 | £6,000 | £3,000 | £3,000 |
| 2 | £6,000 | £2,000 | £4,000 |
One NoU will be issued.
One NoU will be issued for both workers with underpayments arising in periods 4 and 5. As the total underpayment in periods 4 and 5 is £12,000, the penalty will be calculated as:
100% of the underpayment arising in period 4; i.e. penalty = £5,000
200% of the underpayment arising in period 5; i.e. penalty = £14,000
In this scenario the employer will receive one NoU and one penalty totalling £19,000.
Example 4
An employer has underpaid 3 workers for pay reference periods starting 1 June 2015 and ending 31 May 2016. The underpayment for all workers arises in period 4 and ends in period 5.
The total underpayment is £23,300 made up of:
| Worker | U/P | Period 4 | Period 5 |
|---|---|---|---|
| 1 | £22,000 | £12,000 | £10,000 |
| 2 | £700 | £500 | £200 |
| 3 | £600 | £400 | £200 |
One NoU will be issued.
One NoU will be issued for all workers with underpayments arising in periods 4 and 5. As the total underpayments in periods 4 and 5 is £23,300, the penalty will be calculated as:
100% of the underpayment arising in period 4; i.e. penalty = £12,900
200% of the underpayment arising in period 5; i.e. penalty = £20,800
The total penalty stands at £33,700, this should be adjusted to take into account worker 1 whose underpayment should be capped at the maximum of £20,000 for a single worker, reducing the penalty to £31,700.