The National Minimum Wage was introduced in 1999.  Despite widespread public knowledge of the obligation on all employers (regardless of size) to pay the NMW, abuse is still widespread.  Sanctions against defaulting employers, especially in the care sector, are getting even tougher, as this article by James Wilders, partner in our employment team explains.

The NMW for adults is currently £6.31 an hour, with lower rates for younger workers and apprentices.  The adult NMW will increase to £6.50 an hour on 1 October 2014.

The NMW is enforced by HM Revenue & Customs.  Enforcement is initiated either by a complaint from a worker or third party, or as a result of a risk profiling or targeted enforcement of a particular low-paying sector.  Care providers are reputed as being one of those sectors where low pay is common.

HMRC compliance officers can carry out inspections at any time without reason and can require employers to produce records.

A notice of underpayment will be issued in all cases where there are arrears of the NMW at the start of the compliance officer’s investigation.  The notice of underpayment sets out the arrears of NMW to be paid by the employer together with a requirement for the employer to pay a financial penalty to the Secretary of State within 28 days.

The financial penalty is 100% of the total underpayment of the NMW, subject to a minimum of £100 and a maximum  of £20,000.  If the employer complies with the notice of underpayment within 14 days then the penalty will be reduced by 50%.  The Government published the Small Business, Enterprise and Employment Bill on 25 June under which the maximum penalty of £20,000 will apply on a per worker basis rather than the maximum applying to each employer.

The HMRC enforcement officer can sue employers who fail to comply with the notice of underpayment in the Court or the Employment Tribunal.  They can also prosecute the employer in the criminal courts.  It is a criminal offence among other things to refuse or wilfully neglect to pay the NMW; to fail to keep the required records or to keep false records; or to refuse or neglect to provide information to an enforcement officer.

The current criminal penalty for failure to pay the NMW is a fine of up to £5,000, although the Government intends that in the future (on a date not yet determined) such fines will be unlimited.  In addition, the officer of a company who consents or connives in or neglects to pay the NMW can be guilty of the offence and therefore liable to the fine, together with the company.

As well as these criminal sanctions, employers issued with a notice of underpayment may be named and shamed in a press release issued by the Department for Business, Innovation and Skills.  Employers have 14 days to make representations to the Department as to why they should not be named in this way.  They will not be named if, for example it would not be in the public interest to do so.

The latest naming and shaming was on 8 June when the Government published details of 25 employers who had failed to pay the NMW.  The list is said to represent only a small proportion of those breaching the NMW legislation.  Details of the defaulting employers were widely reported in the news media, for example on the BBC news website, and in employers’ local newspapers.

The potential penalties for care sector employers who fail to pay the NMW will soon become even greater.  In its draft statutory guidance to the Care Act 2014 published on 6 June, the Government stated that, “When commissioning care contracts, local authorities should assure themselves and have evidence that service providers deliver services through staff who are remunerated so as to retain an effective workforce.  Remuneration should be at least sufficient to comply with the NMW legislation….. including remuneration for any time spent travelling between appointments.”

The draft guidance goes on to state that local authorities should consider every legal means of excluding a provider which has previously been in breach of the NMW legislation from the tendering process.  It follows that care sector employers who fail to pay the NMW may risk being banned from tendering for local authority contracts.

The sanctions facing employers in the care sector who fail to pay the NMW are now not only numerous but also potentially fatal to their business.  In summary, they face:

  1. An obligation to pay arrears of pay;
  2. A penalty of up to £20,000, soon to apply in relation to each underpaid worker;
  3. Criminal proceedings and (in the future) an unlimited fine against both the provider as well as the officers of the company concerned;
  4. Public naming and shaming in the news media; and
  5. Exclusion from tendering for local authority care and support services contracts.