Are You Paying Your Employees the Correct Wage?
Most countries have a minimum wage, but who makes sure that working people are actually paid what the law guarantees them? What happens when an employer doesn’t pay the minimum wage?
Unions play an important role in enforcing the minimum wage in some countries, while some employees hire lawyers and take on those violating the laws around minimum wages directly. However, government agencies or labor inspectorates tend to be the most visible enforcers.
Employers in violation of minimum wage laws may be fined and subjected to other penalties, in addition to having to pay the wages they owe to their employees. In Germany, for example, companies can be fined as much as €500,000 ($594,000) and under certain circumstances, also be excluded from public contracts for violating minimum wage laws. The UK government recently began publishing a list that “names and shames” employers that violated the country’s minimum wage law.
The most recent list contained 139 employers that were investigated for minimum wage violations between 2016 and 2018. It included Tesco, a major supermarket chain, the restaurant chain Pizza Hut and many smaller businesses. Combined, these 139 employers failed to pay more than £6.7 million ($9.3 million) to more than 95,000 employees.
Fortunately, there are steps employers can take to avoid violations of the minimum wage laws. Occasionally, there are dishonest employers out there, but many violations of minimum wage laws are unintentional and can be prevented with attention to detail and good recordkeeping. For instance, the British government found that “over-deducting” to the point that the employee’s hourly rate of pay fell below the legally required amount was the most common reason for violations of the minimum wage law. Meals, parking, uniforms and training were some of the most common deductions and charges.
Three additional actions will prevent employers from making other common mistakes.
- Keep Your Knowledge Updated About The Current Minimum Wage
As simple as this sounds, it is easy to overlook a change in the law or forget to raise employees’ wages when it changes. In many countries, a new minimum wage is set every year, or sometimes, multiple times a year. The minimum wage may also be higher for employees in a certain age range, professions, or based on other criteria. Periodic audits to ensure that every employee is being paid the appropriate wage can ensure a business keeps up with the law.
2. Accurately Track Employee Hours
Employers should track their employees’ time precisely and make sure that employees are paid for all the time they work, including the time they are working before and after their scheduled shifts. Employers should also be careful when rounding off employees’ hours; rounding hours down when they should be rounded up can lead to an undercount of an employee’s hours and hence, underpayment.
3. Ensure Correct Employee Classification
Treating an employee as a contractor or self-employed can have serious consequences. Likewise, believing that an employee is salaried when they are hourly can result in an employee being paid what turns out to be an hourly rate below the minimum wage.
The minimum wage is a simple enough idea but complying with it is not always simple. It can be tempting just to do a quick Google search to find the current amount of the minimum wage, make sure that the company’s records show everyone is being paid at least that much and call it a day.
Unfortunately, that sort of quick process may not be enough. A proper minimum wage audit begins with looking up the current minimum wage, preferably from a government website, an official government publication or a trusted platform and then checking closely to make sure each employee is receiving an appropriate wage. Taking the time to be thorough once or twice a year can avoid a lot of embarrassment and expense later.
