£5.8 Million Owed: 5 Critical Reasons Why HMRC Is Warning Christmas And Seasonal Workers To Check Their Pay
The festive season often brings a surge in temporary and seasonal jobs, but for thousands of workers, it also brings a hidden financial risk. HM Revenue and Customs (HMRC) has issued a fresh, urgent warning to anyone taking on temporary work this Christmas, urging them to meticulously check their pay and tax deductions. The warning comes as HMRC reveals a staggering £5.8 million in wage arrears was identified and owed to over 25,200 underpaid UK workers in the 2024–25 tax year alone.
This significant figure highlights a persistent, widespread problem in the seasonal employment market, affecting staff in retail, hospitality, leisure, and logistics. The underpayment issue is not a single tax error but a combination of National Minimum Wage (NMW) breaches and common payroll mistakes, particularly incorrect tax codes, that can leave temporary staff short-changed by hundreds or even thousands of pounds. As of the 2024/25 tax year, HMRC has also issued approximately 750 penalties totalling £4.2 million to non-compliant employers, underscoring the seriousness of the issue.
The Double Threat: NMW Breaches vs. Tax Code Errors
The term "underpaid" for seasonal workers typically encompasses two distinct, but equally damaging, financial issues. The first is a failure by the employer to comply with National Minimum Wage (NMW) and National Living Wage (NLW) laws, which is a direct wage theft. The second is an error in the PAYE (Pay As You Earn) system, often due to an incorrect tax code, which results in the worker paying too much tax, reducing their take-home pay.
HMRC's recent focus has been on both fronts, urging temporary staff, short-term contractors, and students to be vigilant. The sheer volume of wage arrears—£5.8 million owed to over 25,000 people—demonstrates that NMW violations are a massive concern, but incorrect tax codes remain a perennial problem for those with short-term or multiple jobs.
5 Critical Reasons Why Christmas and Seasonal Workers Are Underpaid
Understanding the root causes of underpayment is the first step to protecting your earnings. Seasonal employment, by its nature, involves rapid hiring, short contracts, and high staff turnover, which creates fertile ground for payroll mistakes and non-compliance. Here are the five most common reasons thousands of workers are left short-changed:
1. National Minimum Wage (NMW) and National Living Wage (NLW) Violations
This is the most direct form of underpayment. Many employers in high-demand seasonal sectors like retail and hospitality are found to be non-compliant. Common ways employers breach NMW/NLW rules include:
- Unpaid Working Time: Not paying for time spent on mandatory training, security checks, or even waiting to start a shift.
- Unlawful Deductions: Docking pay for uniforms, travel costs, or till shortages, which brings the worker's effective hourly rate below the legal minimum.
- Incorrect Pay Rate: Simply paying an hourly rate below the current NMW/NLW for the worker's age bracket. The NMW/NLW rates change frequently, and employers sometimes fail to keep up.
2. Incorrect Tax Codes (The P45/P46 Problem)
Incorrect tax codes are a significant issue, especially for those with multiple jobs or who are new to the PAYE system. When a worker starts a temporary Christmas job, they should provide a P45 from their previous employment or complete a starter checklist (formerly P46). If they fail to do this, or if the employer processes the information incorrectly, HMRC may assign an emergency or incorrect tax code, such as 'BR' (Basic Rate), 'D0' (Higher Rate), or 'W1/M1' (Week 1/Month 1 basis).
- Emergency Tax Codes: These codes often result in the worker being taxed on all their earnings from that job because their tax-free Personal Allowance is not applied. This is a common situation for students or those taking on a second job.
- The Result: The worker pays too much tax upfront. While this money is usually refundable, it drastically reduces the paycheque when it is needed most during the festive period.
3. Failure to Apply the Personal Allowance
Every worker in the UK is entitled to a tax-free Personal Allowance (which is £12,570 for the 2024/25 tax year). For seasonal workers, especially those who only work for a few weeks, the payroll system might incorrectly assume they will earn the full annual salary, leading to a miscalculation of tax. Conversely, if a worker has two jobs, their full Personal Allowance is often applied to the main job, and the second job is taxed at a higher rate. If the second job is incorrectly given the full allowance, the worker may underpay tax and face a bill later.
4. Misclassification of Employment Status
In some cases, employers may incorrectly classify a worker as "self-employed" when they are, in fact, an employee. This is often done to avoid paying National Insurance contributions, holiday pay, and other employee benefits. This misclassification can lead to the worker being responsible for paying their own tax and National Insurance, often resulting in a surprise tax bill at the end of the year, effectively making them feel underpaid.
5. Payroll System Errors and Human Mistakes
The sheer volume of temporary staff hired over Christmas, combined with the pressure of the holiday rush, increases the likelihood of simple administrative errors. These can include:
- Entering the wrong number of hours worked.
- Inputting an incorrect National Insurance number or date of birth.
- Processing the wrong pay frequency (e.g., weekly instead of monthly).
These errors, though sometimes minor, can accumulate and significantly impact a seasonal worker's final take-home pay.
How to Check Your Payslip and Claim Back Underpaid Wages
HMRC's primary message is clear: "Check your pay." The responsibility for vigilance ultimately falls on the worker, as catching an error early is the quickest way to resolve it. Here is a step-by-step guide to protecting yourself from underpayment:
Step 1: Verify Your Tax Code and Personal Details
Check the tax code on your payslip. The most common tax code for a worker with one job is 1257L (for the 2024/25 tax year). If your code is 'BR', 'D0', or 'W1/M1', you are likely paying too much tax, and you need to act immediately. The 'BR' code, in particular, means you are being taxed at the basic rate on all your earnings.
- Action: Contact your employer's payroll department immediately. If they cannot resolve it, contact HMRC directly via your Personal Tax Account or the dedicated helpline to get a correct code issued.
Step 2: Calculate Your Hourly Rate and Hours
Ensure your hourly rate meets or exceeds the current National Minimum Wage or National Living Wage for your age. Then, cross-reference the hours paid on your payslip against your personal record of hours worked. Pay particular attention to non-shift time, such as mandatory meetings or training sessions, to ensure they were included in your total paid hours.
- Action: If you suspect an NMW violation, raise it with your employer first. If they refuse to correct it, you can report the employer confidentially to HMRC, who will investigate the case and ensure you receive the wage arrears owed.
Step 3: Keep All Documentation
For any temporary or seasonal job, keep copies of your contract, all payslips, P45/P60 forms, and any correspondence with your employer regarding pay. This documentation is crucial for claiming back any overpaid tax or underpaid wages.
Step 4: Reclaim Overpaid Tax (The P800 Process)
If you have overpaid tax due to an incorrect tax code, HMRC will usually automatically calculate this and send you a P800 tax calculation after the end of the tax year (April 5th). If you are due a refund, the P800 will explain how to claim it back online. If you are leaving a job, ensure you receive a P45, as this is essential for your next employer to tax you correctly.
The persistent issue of underpayment for seasonal workers, evidenced by the £5.8 million in wage arrears identified in the 2024/25 tax year, is a clear signal that temporary staff must be proactive. By following these steps and being aware of the dual threats of NMW breaches and tax code errors, you can ensure that your hard-earned festive wages are paid correctly and in full.
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