My employer isn’t paying me the correct minimum wage. What should I do?

As of 1 April 2021, the new national minimum wage rates are:

The national living wage was originally for workers aged 25 and over who were not in the first year of their apprenticeship. From 1 April 2021, it is extended to all workers aged 23 and over, who are not in the first year of an apprenticeship.

Most workers are entitled to the national minimum wage, although there are a few exceptions. There is information about the minimum wage on our website.

Here is what you should do if you think your employer is not paying you the correct minimum wage.

First – check whether either of the following could be the reason for the ‘underpayment’:

1. Are you on furlough?

If you are on the minimum wage and are also on furlough, then due to the ‘look back’ period, it is possible that your furlough pay could be based on old pay data. Indeed, it may not take into account either the April 2020 or April 2021 minimum wage rate rises as explained here.

This is not illegal because there is no requirement to pay the minimum wage for any time spent not working (on furlough for example).

2. What is your pay period?

The rules say that any new rate starts from the beginning of the next pay period. People naturally think that if the rate changes on 1 April 2021, then they should be paid that rate from that date. But if you are paid from the 16th in one month to the 15th of the next month (say), then you will only be entitled to the new rate from the beginning of the following pay period, that is, 16 April 2021.

These same rules apply to people who have just had a birthday (that is, for those turning 18, 21 or 23) and apprentices – that is, for apprentices turning 19 and/or for those moving into the second year of their apprenticeship.

What should I do next?

If you still do not think you are getting the correct rate, you should talk to your employer.

Due to the coronavirus outbreak, some employers may simply have missed or forgotten to implement the 1 April 2021 changes. If it is a genuine oversight, they will want to put the mistake right as soon as possible.

At this stage, your employer can fix any issues ‘informally’ themselves, without having to involve the authorities. This is because the law allows an employer to pay an additional amount of wages to self-correct an underpayment of national minimum wage. However, employers have to do this accurately. It is also important that when they pay any extra amount to you that it is clearly identified as NMW arrears. As part of the self-correction process, they must check back up to six years to make sure there have been no similar failings.

If the underpayment arose in a previous tax year, his employer would have to apply an uplift to the arrears to help compensate Jake – we explain more here.

What if my employer refuses to correct my pay?

If talking to your employer does not work, you can contact a confidential helpline (ACAS Pay and Work Rights Helpline) to help you solve any dispute. You can find the telephone number on GOV.UK.

ACAS can pass complaints to HMRC (who enforce the minimum wage rules) to investigate, as required. Alternatively, you can use an online form to make a complaint directly to HMRC (or take your employer to an Employment Tribunal yourself although there are strict time limits for this).

If HMRC decide that the employer has not paid the minimum wage, they will send the employer a notice telling them that they must pay you the arrears and they may also be given a penalty.

How are arrears treated for tax and benefits purposes?

Minimum wage arrears are treated as earnings for Pay As You Earn (PAYE) tax and NIC purposes.

In Jake’s case (from the example above), his employer paid the arrears to Jake at the same time as his May 2021 wages. By adding them on top of Jake’s May wages, they will probably be taxed at 20% and have NIC deducted at 12% - this will probably give the correct result (because, if they had been paid at the correct time, that is in April 2021, they would have been taxed at 20% and have had NIC deducted at 12%).

If you do not think the way your employer has dealt with the payment of arrears has given the correct result, for example, because they have been paid at the same time as next months’ wages and have pushed you into the next tax bracket – then don’t panic – usually PAYE operates cumulatively so any issues with the over deduction of income tax via PAYE should get resolved.

NIC is different, as arrears of pay are usually treated as forming part of normal gross pay in period the payment is made, so you will not be due a refund of NIC.

If the underpayment arose in a previous tax year, then because arrears should be taxed in the year of entitlement, not the year of payment, the tax and NIC position can be a little bit more complicated, as we explain in our guidance.

Finally, you should be aware that such arrears payments may impact any benefits or tax credits you receive. For universal credit purposes, our understanding is that if you receive different months’ pay together or at least in the same UC assessment period – this could look to DWP as though you have higher income in that assessment period so your UC award may reduce automatically for that assessment period. We recommend that you contact DWP via your UC journal to confirm how the minimum wage arrears will impact on UC.