SolvedNMWM13219 | Issuing Notices of Underpayment: how to distribute penalties on notices: flowchart
From HM Revenue & Customs · National Minimum Wage Manual
Summary of the penalties which apply to different pay reference periods
| Period | PRPs | Penalty calculation |
|---|---|---|
| 1 | Before 6 April 2009 | No Notice of Underpayment (NoU) to be issued. |
| 2 | Start on or after 6 April 2009 to 6 March 2014(Any arrears that fall into period 2 are now too old to be included on a notice) | 50% of total underpayment |
| Minimum £100for the NoU | ||
| Maximum£5,000for the NoU | ||
| 3 | Start on or after 7 March 2014 to 25 May 2015(Any arrears that fall into period 3 are now too old to be included on a notice) | 100% of total underpayment |
| Minimum £100per NoU | ||
| Maximum £20,000per NoU | ||
| 4 | Start on or after 26 May 2015 to 31 March 2016 | 100% of total underpayment |
| Minimum £100per NoU | ||
| Maximum £20,000per worker | ||
| 5 | Start on or after 1 April 2016 | 200% of total underpayment |
| Minimum £100 per NoU | ||
| Maximum £20,000per worker |
NMWM13218 describes the rate of the penalty in various pay reference periods.
Key points to consider when preparing a NoU:
In what pay reference period does the underpayment arise?
What is the total underpayment; and does it exceed £20,000?
Is the underpayment less than £100?
Does the underpayment span two or more different periods of legislation?
Is the amount of an underpayment for any individual worker equal to or exceeding £20,000?
When preparing multiple Notices of Underpayment ensure that the collective penalty per worker does not exceed £20,000.
Here are four examples to illustrate the approach set out in the summary table in Appendix 1.
Example 1
An employer has underpaid a worker for pay reference periods starting 1 June 2015 and ending 31 July 2016.
The underpayment arises in period 4 and ends in period 5.
The total underpayment is £50 made up of:
| Worker | U/P | Period 4 | Period 5 |
|---|---|---|---|
| 1 | £50 | £20 | £30 |
One NoU will be issued.
As the total underpayment spans periods 4 and 5 (£50) and is less than the minimum penalty of £100 per NoU, the underpayment will attract the minimum penalty of £100.
In this scenario the employer will receive one NoU and one penalty of £100.
Example 2
An employer has underpaid 2 workers for pay reference periods starting 1 August 2014 and ending 31 May 2016. The underpayment for all workers arises in period 3 and ends in period 5.
The total underpayment is £27,000 made up of:
| Worker | U/P | Period 3 | Period 4 | Period 5 |
|---|---|---|---|---|
| 1 | £13,000 | £10,000 | £1,000 | £2,000 |
| 2 | £14,000 | £11,000 | £1,000 | £2,000 |
Two NoUs will be issued.
NoU 1
One will be issued for all workers with underpayments arising in period 3. As the total underpayment in period 3 is £21,000, the penalty will be calculated at 100% or the underpayment in a single NoU is capped at the maximum of £20,000.
NoU 2
A second NoU will be issued for all workers with underpayments arising in periods 4 and 5. As the total underpayment in periods 4 and 5 is £6,000, the penalty will be calculated as:
100% of the underpayment arising in period 4; i.e. penalty = £2,000
200% of the underpayment arising in period 5; i.e. penalty= £8,000
In this scenario, as both workers do not exceed £20,000 across all three periods no adjustment is required and the employer will receive two NoUs and two penalties totalling £30,000.
Example 3
An employer has underpaid 2 workers for pay reference periods starting 1 June 2015 and ending 31 July 2016. The underpayments arise in period 4 and end in period 5.
The total underpayment is £12,000 made up of:
| Worker | U/P | Period 4 | Period 5 |
|---|---|---|---|
| 1 | £6,000 | £3,000 | £3,000 |
| 2 | £6,000 | £2,000 | £4,000 |
One NoU will be issued.
One NoU will be issued for both workers with underpayments arising in periods 4 and 5. As the total underpayment in periods 4 and 5 is £12,000, the penalty will be calculated as:
100% of the underpayment arising in period 4; i.e. penalty = £5,000
200% of the underpayment arising in period 5; i.e. penalty = £14,000
In this scenario the employer will receive one NoU and one penalty totalling £19,000.
Example 4
An employer has underpaid 3 workers for pay reference periods starting 1 June 2015 and ending 31 May 2016. The underpayment for all workers arises in period 4 and ends in period 5.
The total underpayment is £23,300 made up of:
| Worker | U/P | Period 4 | Period 5 |
|---|---|---|---|
| 1 | £22,000 | £12,000 | £10,000 |
| 2 | £700 | £500 | £200 |
| 3 | £600 | £400 | £200 |
One NoU will be issued.
One NoU will be issued for all workers with underpayments arising in periods 4 and 5. As the total underpayments in periods 4 and 5 is £23,300, the penalty will be calculated as:
100% of the underpayment arising in period 4; i.e. penalty = £12,900
200% of the underpayment arising in period 5; i.e. penalty = £20,800
The total penalty stands at £33,700, this should be adjusted to take into account worker 1 whose underpayment should be capped at the maximum of £20,000 for a single worker, reducing the penalty to £31,700.