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Ensuring National Minimum and Living Wage compliance in labour supply chains

Published 27 March 2023

Introduction

The national minimum wage is the legal minimum hourly rate of pay for workers over the compulsory school age, generally 16 years of age.

There are different minimum wage rates for workers depending on their age. Workers aged 23 and over are entitled to the National Living Wage which is the highest rate of the minimum wage.

All employers must pay the correct minimum wage.

The minimum wage and labour supply chains

Minimum wage rules apply to companies in labour supply chains in the same way they do for all employers.

Minimum wage calculations can be complex, and mistakes can be made unintentionally. Additionally, where employment involves a labour supply chain, the risk of not paying the correct minimum wage is increased because there are often several companies involved between worker and end user.

The purpose of this page is to:

• help you identify minimum wage risks that may exist in your supply chain
• offer advice on how to avoid them
• provide additional information

It is designed to be read alongside core guidance on the National Minimum Wage and Living Wage.

Common causes of underpayment in the labour supply chain

Unpaid working time

A common cause of underpayment in the labour supply chain is unpaid working time.

This can happen because the end-user of the supply chain has working practices that the recruitment agency or umbrella company don’t know about. For example, unpaid working times can be small amounts of time either before or at the end of a workers shift.

Not paying workers for all the time worked has the effect of reducing their hourly rate of pay, which may bring them under the National Minimum Wage or Living Wage rate, resulting in an underpayment.

Examples - unpaid working time

The Bold Company is the end user in a supply chain that engages recruitment agencies to help staff at their distribution centre. The workforce are paid hourly at minimum wage rates. In addition to their working hours the company require staff to undergo a security check at the end of each shift. However, this requirement is not communicated down the supply chain to the recruitment agency (the employer) and the additional time taken for the security checks is not added to the time calculations for working out pay. The workers may be underpaid.

Steve works a fixed shift between 10am and 6pm at a Eazy Gym but is employed through an umbrella company. His rate of pay is just above the current living wage rate. Although his working time each day is fixed, Eazy Gym asks him to arrive 20 minutes before the start of his shift so that he can check and clean the equipment before the gym opens. This time isn’t communicated down the labour supply chain and Steve is not paid for this time by the umbrella company. He may be underpaid.

Martin works as a carer for Wellness Springs Ltd, a large private care provider, but is employed through a recruitment agency. He earns just above the minimum wage and is contracted to visit 8 clients a day on behalf of Wellness Springs Ltd. As part of his job, he is required to travel between customers’ homes. He claims a petrol allowance for the travel, but when he checks his payslip, he notices he’s only been paid for the time spent at customer’s homes and not the travel time.

Deductions and payments

Certain deductions from a worker’s pay, or payments made by the worker to their employer, reduce pay for minimum wage purposes. If it reduces pay below the minimum wage, workers will be underpaid

Examples - deductions and payments

The Bold Recruitment Agency keeps a stock of uniform for workers that are employed at a local hotel and restaurant. The workers are paid minimum wage. However, they charge workers for additional uniform items through a deduction on workers’ payslips. The deduction will reduce minimum wage pay, meaning the workers would be underpaid.

Workers at a distribution centre use secure lockers for storing personal items during their shift. The Bold Recruitment Agency, who supply the workers to the distribution centre, charges for a deposit for the lockers through a deduction in workers’ payslips. They advise workers that they will receive the deposit back when they finish their contract. Even though the worker may receive the money back when they leave, the initial deduction will still reduce the workers’ pay in the pay reference period it was deducted from and could cause an underpayment of National Minimum or Living Wage if the workers are paid on or just above the current rates.

Check and review the risks

These examples are guidelines to help you avoid underpaying your workers:

• check workers are being paid their contractual rate and that it complies with the National Minimum wage or the National Living Wage
• check that if any deductions are being made that they do not take workers’ pay below the minimum wage rates
• review the checklist for employers for other common causes of underpayments
• conduct due diligence to ensure you are receiving the correct working time information to pay workers the appropriate amount, as workers need to be paid for their actual working time, not what they are scheduled to work - recruitment agencies often receive shift data and/or rota data for workers, which may not have all working time recorded (for example having to arrive earlier, undertaking security checks at the end of their shift)
• make sure that workers know who to approach if they want to raise or try and rectify an issue with their pay - whoever employs the worker, whether it’s the recruitment agency or umbrella company, there needs to be a clear communication channel in place

Overview - making sure all workers are paid correctly

The examples above are not exhaustive. The key theme is that the end-user is not advising the labour supply chain of all of the workers’ working time. End-users tend to send rotas and absences but this does not always give the complete picture.

This means that the employer must have robust processes in place to ensure that time spent working is recorded accurately.

It is the employers’ responsibility to keep sufficient records to show that they are meeting their National Minimum Wage obligations and paying their workers at National Minimum Wage.

There are no ‘specific’ records that must be kept, and it is an employer’s choice how they choose to show that the workers have been paid at least the National Minimum Wage.

More information

There is extensive minimum wage guidance on GOV.UK:

• Calculating the minimum wage
• A checklist of common causes of minimum wage underpayments
• National Minimum Wage and National Living Wage rates
• National Minimum Wage and Living Wage calculator for employers

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