A consultation has produced a list of possible reform issues
It is high time that the national minimum wage (NMW) regulations were consolidated as they have been amended more than 20 times during their 15 year history. Following a consultation last summer, the government has now said it plans to introduce a set of consolidated regulations on 6 April. Not that it is making any substantive policy changes – the exercise is merely part of the Red Tape Challenge, the government’s initiative for easing the legislative burden on employers. However, policy changes in this area may be just around the corner as political pressure increases ahead of the election and questions are raised as to how effective the regulations actually are.
‘To do’ list
Only the details will be changed when the consolidated regulations come into force in April, but the very fact of consolidation into one document, the sharpening of the drafting and the introduction of innovations such as the use of formulae for calculating the wage should lead to greater clarity. And this is not the end of the story – one purpose of the consultation was to prepare a ‘to do’ list of issues which might require substantive change in future and the government now has such a list. Reducing the complexity of the apprentice rate is on it and, more immediately, the guidance on the NMW is to be reviewed this year.
Pay is an emotive subject and a politically sensitive one in an election year. The low level at which the NMW is set, the prevalence of scams to work around it, and questions over its effective enforcement have all contributed to calls for reform. The annual NMW rate review last October resulted in the first increase in real terms for six years, yet it lags well behind the Living Wage, an estimate of the wage needed to cover the basic costs of living determined by an independent body.
The Living Wage has no legal effect, but it does have a certain logic and carries a moral authority. Political endorsement has been widespread, yet the fact remains that there is a confusing gap between the rationale of the Living Wage and the level of the legal minimum. The Labour party has pledged to increase the NMW by £1.50 over the course of the next Parliament if elected. This would have a significant impact but the disparity with the Living Wage would remain.
Government contracts
There are also plans to create disclosure obligations to ‘name and shame’ employers who don’t pay the Living Wage, as with the NMW, and to compel government sub-contractors to pay the Living Wage. This raises a number of issues. If contractors only pay the Living Wage on certain public sector contracts and not elsewhere within their business, the pay disparities could lead to workforce dissatisfaction and equal pay claims. If they move to the Living Wage across the board, the increase in costs is unlikely to be recoverable if pricing has been fixed and profitability based on assumptions which do not allow for such a pay hike. Requests to contractors to raise rates part way through a contract are likely to be met with strong resistance because of the contractors’ inability to pass on any increase.
Enforcement is also attracting increased attention. Estimates suggest a quarter of a million workers are paid less than the NMW, yet there have only been 10 prosecutions in the 15 years it has been in force. The TUC has recently issued a 10-point action programme to keep up the pressure on employers tempted to avoid their responsibilities. It envisages there may be some 500-600 cases annually which could be ‘named and shamed’ for not paying the NMW. As with many aspects of this subject, regulation will stem not only from legal minimums but also from moral pressure.
Michael Ryley is an employment and pensions partner at law firm Weightmans
For more employment law articles, visit HR-inform
