There has been speculation recently amongst agencies and umbrella companies on what constitutes ‘wage’ in relation to National Minimum Wage legislation (NMW).
The government on their direct.gov website seem to be clear on what they want. They state:
Deductions and payments which reduce NMW pay
Some deductions from pay .. are taken into account in working out NMW pay. Deductions and payments which reduce NMW pay are:
- refunds of any money you spent in connection with your work, for example the cost of purchasing tools
- refunds of any expenses you incurred doing your job, for example travel costs
This is important for workers on lower rates, paid through umbrella companies.
Umbrella companies can’t legitimately pay contractors where the contractors’ expense claims (and umbrella company fee) have taken their taxable salary below the statutory NMW in operation.
Both umbrella companies and the agency will be in breach of the regulations and attract unwelcome attention (and penalties!) from an HM Revenue Compliance Officer.
Solution
Through our ‘FreePay’ Service, agency contractors can be paid free of any costs or other deductions, thus ensuring their salary is not reduced below the NMW. There is a small fee payable by the agency but the guarantee of compliance can often win agencies additional business with their end-clients.
Contractors using FreePay can also submit expenses online and then submit an end of year tax claim to HMRC.
Background
The National Minimum Wage Act 1998 came into effect on 1 April 1999. HMRC (on behalf of the Department of Trade and Industry) enforces it through dedicated National Minimum Wage (NMW) Compliance Teams and local debt pursuit offices.
From 6 April 2009, a new automatic penalty will be levied on employers where compliance officers find arrears of the National Minimum Wage (NMW) after 6 April 2009.
