Belfast Telegraph

Not paying employees properly can prove costly

Sharon Brown and Clare Galloway of business advisory firm Magic Beans on the pitfalls of minimum wage legalisation

An employee’s average hourly pay is worked out over a period called the ‘pay reference period
An employee’s average hourly pay is worked out over a period called the ‘pay reference period

Most business owners are aware the hourly rate for the minimum wage depends on your age and whether you’re an apprentice.

However, seemingly routine practices have, in HMRC’s view, meant employees are being treated unfairly and effectively below legal statutory limits, leading to firms being hit for arrears of wages and fined heavily.

An employee’s average hourly pay is worked out over a period called the ‘pay reference period’. This is usually the period of time that they are actually paid for.

For example, if an employee is paid weekly their pay reference period is one week; if they are paid monthly it is one month.

The pay that counts may not just be the pay your employees receive during the pay reference period. It also includes pay which they earn during that period, but don’t receive until the next one.

To ensure you pay the national minimum wage, you need to know what elements of pay count towards the NMW. You also need to know which hours your employees are entitled to be paid for.

So the following situations could mean you are failing to pay the minimum wage:

  • There is excessive docking of pay for being late.
  • ‘Check in/out’ or security checks before or after the start of a shift are unpaid
  •  Pay is averaged across the pay period and the employee is not paid for actual hours worked
  •  You have “refunded” money your employees spent in connection with work, for example the cost of buying tools or uniform.
  • Deductions have been made to cover the cost of items you, as an employer, supplied that are needed for their job, for example, tools or uniform.
  • Deductions have been made for the employer’s business’ own use and benefit for goods and services, for example transport the employer provided to and from work, regardless of whether the employee has the option of using the goods or services.
  •  Travel time is not considered working time.

A recent European Directive stated as travelling time could “neither be shortened nor used freely by employees for their own interests” then they were “at the disposal” of their employer. Therefore, their time is covered by the directive and counts as working time. You pay money to someone on work experience, therefore potentially creating a contract of employment, and therefore the requirement to pay the NMW.

Running a business has without doubts its rewards, but there are a number of potential minefields.

Magic Beans has been set up with this in mind, to offer an outsourced financial controller service to businesses at a price they can afford, bridging the gap between bookkeeper and the traditional annual compliance accountant. The company provides a full suite of real-time cloud-based management accounting services for businesses in Northern Ireland, allowing business owners to not only save money over in-house financial controllers and bookkeeping, but to ensure compliance with various regulatory matters and to have assistance in making valuable management decisions.

Employers who find they’ve paid a worker below the correct minimum wage must pay any arrears immediately.

For further information, please contact Clare Galloway ( or visit

Belfast Telegraph Digital