The Compliance Risk That Starts Outside Payroll

Key Takeaway

When universities think about National Minimum Wage (NMW) compliance, it is often assumed to be a payroll responsibility. In reality, payroll can only process the information it receives. Most NMW risks are created long before pay reaches the payroll system.

This becomes increasingly important as NMW rates continue to rise. While many universities are Living Wage accredited and pay rates comfortably above the statutory minimum, NMW compliance is about much more than an employee's headline hourly rate.

An employee can be paid well above the minimum wage and still be underpaid for NMW purposes if their actual working time is higher than expected or if certain deductions reduce their pay for NMW calculations. HMRC and the Fair Work Agency have highlighted examples where employees earning less than around £35,000 a year could fall below the NMW threshold simply by working an additional 30 minutes per day without payment.

For universities, the factors that create NMW risk are often operational rather than payroll-related. Examples include:

• General working practices that don't require the reporting of hours worked
• Expectations that staff regularly work beyond their contracted hours.
• Mandatory attendance at training sessions, meetings or events outside normal working hours.
• Time spent preparing for teaching or other activities that is not reflected in working time assumptions.
• Certain salary sacrifice arrangements.
• Deductions from pay, including some accommodation, uniform or equipment costs.
• Working practices imposed by outsourced service providers.

In each of these cases, the decision that creates the risk is typically made by managers, HR, procurement teams, budget holders or service leads, not payroll.

Payroll teams may identify potential issues, but they cannot prevent NMW breaches if they are unaware that additional working time is being undertaken or operational decisions have changed how work is performed. By the time an employee's pay is processed, the underlying risk may already have arisen.

This is why effective NMW compliance requires a whole-institution approach. HR, Finance, Procurement and operational managers all have a role to play in understanding how working arrangements operate in practice and whether those arrangements could affect NMW calculations.

To find out more, BUFDG has an introduction to NMW course here and we will be producing a series of resources over the next few months to help institutions with their compliance and risk.