Organisations breaking the law could face higher penalties even when underpayments are accidental
Employers who do not pay their workers the national minimum wage (NMW) face tough new sanctions, with the maximum penalty rising from £5,000 to £20,000.
They will not be able to avoid this penalty by saying that their failure to pay the NMW was a mistake or an oversight.
There are only limited exceptions to the new regime, introduced amid mounting evidence that many employers have been flouting NMW law. A recent report by the Centre for London and Trust for London, for example, found that over 300,000 people in the UK earn less than the NMW, yet only nine employers has ever been prosecuted for underpaying their workers, while only one has ever been publicly named and shamed.
Enforcement
Earlier this month the Department for Business, Innovation and Skills (BIS) published a policy setting out how HM Revenue & Customs (HMRC) will deal with employers who break minimum wage law. The policy emphasises that where an investigation reveals underpayment, the aim is to ensure workers receive what they are entitled to as soon as practicable.
To do this, HMRC will issue a notice of underpayment setting out both the penalty and the arrears of wages payable to employees. If the employer does not comply, HMRC can take further action under the National Minimum Wage Act 1998 to establish a debt enforceable in law (section 19D(1)(c). It can then use civil enforcement mechanisms, such as seizure of goods, to enforce the notice.
A notice of underpayment can be issued even if NMW arrears are subsequently repaid to workers or the employer claims the underpayment was accidental. Where the minimum wage rate at the time that arrears are calculated is higher than when the underpayment occurred, the arrears are calculated at the higher rate.
The penalty for underpayment is now 100 per cent of the arrears, up from the previous 50 per cent. This higher rate applies to any notice of underpayment for a period on or after 7 March 2014.
Naming and shaming
The policy of naming employers on BIS press notices who break the law was revised last October. It now applies automatically to all employers issued with a notice of underpayment who do not appeal against it or make representations to BIS of the following exceptional circumstances:
- naming carries a risk of personal harm to individuals or their families
- naming carries a national security risk
- it would not be in the public interest to name the employer.
Avoiding traps
The NMW presents some potential traps for the unwary employer. For example, a case last year ,Whittlestone v BJP home Support Ltd, looked at whether a careworker should be paid the minimum wage for the hours she spent sleeping during her overnight shift at her workplace. The EAT held that depended on whether her contract provided that this was ‘time work’ as defined by regulation 3 of the NMW regulations. It decided this was ‘time work’ and she was entitled to be paid the NMW for it.
Tips and gratuities
The law on tips and gratuities not counting towards the minimum wage was changed some time ago and there is now a voluntary code of practice to guide employers in the service industries. On the other hand, the position on free meals, compared to charging rental for tools or uniforms, can cause confusion. Meals can be included in NMW calculations, whereas tools and uniforms cannot. Similarly, if the employer provides accommodation, only some of its value can count towards the NMW, using the accommodation offset rate of £4.73 a day or £33.11 per week. Calculations become complex where the worker has use of the accommodation all the time but only works some of the time.
Employers need to review their rates of pay to make sure these are not below the NMW and where necessary take legal advice. With the adult NMW due to go up from £6.31 to £6.50 on 1 October 2014, the alternative could prove costly both financially and in terms of reputational damage.
Paul Statham is consultant solicitor to Pattinson and Brewer
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