NATIONAL MINIMUM WAGE COMPLIANCE
…is it just a matter of rates?
No! In the last round of “naming and shaming” by the Government, on employers who had failed to pay National Minimum Wage, it was revealed that HMRC had ordered the payment of over £7.3 million across 60,000 workers by 389 employers. Some huge (and well known) employers were on the list and some that you can guarantee are paying their employees the correct hourly rate for their age. So why were they fined and ordered to pay backpay?
Unfortunately, the payment of NMW is not as simple as paying the correct rates. There are many areas that employers unknowingly breach the complex Regulations. These errors arise from Employment and HR practices. Below are just some of the common examples of areas of breach causing issues for employers:
The provision of uniform – if the workers have to provide part of their own uniform (for example black trousers or shoes).
Clocking in systems that automatically deduct specific increments (such as 15 minute blocks) rather than accurately reflecting working time.
Staff who work through unpaid breaks.
Staff being required to undertake pre or post shift tasks (such as setting up their work station or attending handover meetings).
Salary sacrifice schemes that allow a deduction which reduces take home pay below NMW.
Audits are currently conducted by NMW Enforcement Officers working for HMRC, but in April of this year, as a consequence of the Employment Rights Act, the “Fair Work Agency” was established, which will at some point take over responsibility for these audits. We expect this will lead to a greater focus on NMW compliance as well.
How do Enforcement Officers get involved?
Random audit – Officers can decide to audit any company at any time. Most retailers and hospitality providers with large hourly paid contingents of employees have been audited by now (some more than once) but any industry can be targeted.
Complaint by Employee – if an employee raises a complaint regarding the payment of NMW, Officers will conduct a full audit across all employees and on a much wider basis than the actual point the complaint was based on.
What happens when Enforcement Officers get involved?
A lengthy and time-consuming investigation takes place, sometimes lasting several years. Officers will request disclosure of large volumes of documents (contracts, handbooks, policies etc) and pay data. Officers will also attend sites and interview staff.
After this, they will present their findings, allowing the employer the opportunity to challenge these and a form of negotiation takes place until the Officers finalise and issue a penalty notice.
What are the consequences of a breach?
Significant financial penalties – Officers can order arrears payments to current and former workers (going back 6 years) AND a penalty payment to HMRC of 200% of the total arrears underpayment (capped at £20,000 per worker).
Reputational damage – the Government operates a naming and shaming policy, publishing the names of businesses found to be in breach on the Government website.
We have considerable experience advising clients in this area, whether that is before an official compliance audit or sale of the business, to identify risk areas and advise on mitigation. Or during an audit including advising through the process and negotiating with Compliance Officers to limit exposure. Please get in touch for more information.
