In March this year, the Department for Business, Innovation and Skills (BIS) announced details of its latest policy regarding national minimum wage (NMW) enforcement. It is getting tougher on employers with its (i) updated scheme for 'naming and shaming' employers and (ii) increased financial penalties. Retailers need to keep on top of recent changes.
Recap of the law
NMW rates differ depending on a worker's age and whether or not they are in training. The current rates are:
- Standard (adult) rate: workers aged 21 or over = £6.31
- Development rate: workers aged between 18 and 20 inclusive = £5.03
- Young workers rate: workers aged under 18 that are not apprentices = £3.72
- Apprentice rate: apprentices under 19 years of age or those aged 19 and above in their first year of apprenticeship = £2.68
Interns v Volunteers
Internships have been a focus in the press recently, with employers eager to know whether they will be punished for not paying the NMW. It will only be payable if the intern is a "worker" i.e. the "employment status" tests apply, for example, how much control do employers exert over the intern's daily duties; can the intern refuse assignments? Employers cannot simply draw up a written agreement stating that an intern is not a worker or that they are a volunteer in order to avoid paying NMW.
At times calculating NMW is not clear-cut, for example it is not always obvious when deductions can be made from NMW pay packets. Many retailers require their employees to wear uniforms and may think that they can simply deduct the cost of the uniform from wages as an expense, however uniform costs cannot be lawfully deducted if doing so reduces the overall payment below the NMW. Also, the British Retail Consortium advises that if stock-takes take place outside of normal working hours, this is time that should be taken into account when calculating if a worker has received NMW. Furthermore, retailers are reminded that payments should take into account the times when workers are required to be at work, not just when they are working on the shop floor, except of course for unpaid lunch breaks.
Enforcement by BIS
If you are found not to be paying the NMW an HMRC compliance officer may investigate and can issue a notice of underpayment setting out NMW arrears along with a penalty for non-compliance. Even if accidental, it will still be subject to a penalty. Knowingly flouting NMW rates and being consistently uncooperative with compliance officers may lead to prosecution.
Bad publicity – "naming and shaming" updated
Under the scheme introduced in January 2011, employers were only named and shamed if arrears were over £2,000 (as well as £500 on average for each worker) and there was evidence that one of the "general criteria" was met, for example if the employer unreasonably hindered investigations. From October 2013, if you receive a notice of underpayment, regardless of the amount of arrears, you will be referred to BIS to be publicly named.
There will however be a 28 day appeal process under which the employer will have the opportunity to persuade BIS that it should not be named, for example because the arrears specified were incorrect. HMRC will then issue a "case closure letter" and the employer will have 14 days to cite "exceptional circumstances". These include national security risks or it being against the public interest including risk of personal harm to an individual or their family. A desire to avoid negative publicity will not fall under this exception, so it is important to ensure that you comply with NMW legislation if you do not want to be subjected to public censure or ridicule – remember Sports Direct and zero hours contracts, you do not want to attract that sort of PR.
Increased financial penalties
Penalties are based on the underpayment owed to the worker i.e. the difference between the remuneration received by the worker and the NMW rate(s) in force during the period in question. From 7 March 2014, on receipt of a notice, employers will have to pay the following:
- 100% of the underpayment (up from 50% for periods before 7 Match 2014);
- a maximum penalty of £20,000 (up from £5,000). The government also intends to extend the maximum £20,000 penalty to apply to each underpaid worker;
- where the penalty would be less than £100, this is increased to a £100 minimum payment.
For periods of underpayment which cover the period before and after 7 March 2014, employers may receive two notices of underpayment and therefore a double penalty.
- Pay attention to rises in the NMW and make sure that you adhere to these increases. Rates are due to go up in October 2014, for example adult worker rates will increase by 3% to £6.50 an hour;
- Keep up to date records. Remember that obligations under NMW legislation are not restricted to calculating salaries, but also include keeping accurate records for each worker for a minimum of three years. It will be presumed that the worker has not been paid the NMW unless you can prove to the contrary;
- Make sure that you understand what can be deducted from pay for NMW purposes; and
- Keep an eye on younger workers' birthdays . As rates are different for adult and young workers, ensure that each worker is being paid the appropriate rates.