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HMRC internal manual

National Minimum Wage Manual

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HM Revenue & Customs
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Issuing notices of underpayment: calculating the penalty on a notice for pay reference periods before 7 March 2014

Relevant legislation

The legislation that applies to this page is as follows:

  • National Minimum Wage Act 1998, section 19A

All underpayments and/or arrears for pay reference periods before 6 April 2009

Do not include a penalty on the notice of underpayment when all the underpayments and/or the arrears for all the workers named on the notice of underpayment are for pay reference periods starting before 6 April 2009.

Some underpayments and/or arrears for pay reference periods from 6 April 2009 to 6 March 2014

The penalty is half the total underpayment for all workers shown on the notice of underpayment but only for pay reference periods which start during the period 6 April 2009 to 6 March 2014. The penalty is subject to the minimum and maximum limits shown below.

The penalty should be imposed even if the employer pays some or all of the arrears to workers after the start of the investigation.

Some underpayment and/or arrears for pay reference periods after 7 March 2014

Where an investigation identifies an underpayment for pay reference period starting on or after 7 March 2014 a separate, higher penalty applies in respect of those pay reference periods, see NMWM13222.

Minimum penalty for pay reference periods from 6 April 2009 to 6 March 2014

The minimum penalty per employer is £100.

Therefore, if the total underpayment for all the workers named on the notice is £0 to £200 (inclusive), the penalty is always £100.

This includes cases where arrears are shown on a notice of underpayment for any pay reference period starting on or after 6 April 2009 but the total underpayment associated with those arrears is nil because:

  • an employer underpays national minimum wage, and
  • there is an increase in national minimum wage rates, and
  • after the increase in rates, the employer pays workers for the underpaid pay reference periods at the original rates.

In these circumstances, the workers are due arrears which are higher than the amount they were originally underpaid. However, the employer has failed to calculate the arrears correctly as he has not used the formula (NMWM13160). Therefore, whilst a notice may take into account a payment which satisfies the total underpayment originally due, there will be further outstanding arrears due to the workers and the penalty will be £100.

Maximum penalty for pay reference periods from 6 April 2009 to 6 March 2014

The maximum penalty is £5,000.

Therefore, if the total underpayment for all the workers named on the notice is £10,000 or more, the penalty is always £5,000.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000) NMWM13110(This content has been withheld because of exemptions in the Freedom of Information Act 2000)