Tue, 01 Jul 2014
Employers Beware – naming and shaming those who don’t pay the NMW. Regulatory enforcement of the minimum wage is explored by Jessica Smeaton.
Earlier this month the government named and shamed 25 employers who failed to pay their workers the minimum wage. Under rules that came into force in October 2013, previous restrictions on identifying employers who flout NMW law have been stripped back, making it easier for the government to publicise those who have been issued with a Notice of Underpayment.
There is no denying that there is a problem with enforcement of the NMW. In August 2013, when announcing the change in rules BIS stated that HMRC had identified 736 employers in 2012 to 2013 who had failed to pay the national minimum wage, leading to the recovery of £3.9 million in unpaid wages for over 26,500 workers.
But it is not all ‘rogue’ employers; enforcement action can result from simple maladministration. Unfortunately for well-meaning but sloppy employers, that won’t normally save them. According to HMRC policy, the reasons for the underpayment will not be taken into account when determining whether or not to issue a Notice of Underpayment (NOU), even if the underpayment was accidental.
So what should employers be doing to ensure they don’t fall foul of the rules? “Pay the NMW” might be your first answer; but it’s not as straightforward as you might think. On-call time (see Mr J Esparon t/a Middle West Residential Care Home v Miss L Slavikovska UKEAT/0217/12/DA); travel time (see Whittlestone v BJP Home Support Ltd [2014] ICR 275); accommodation off-set and premium rates of pay (see Hamilton House Medical Ltd v Hiller EAT 0246/09) can all provide potential pitfalls for employers. It is unclear how far employers might have been able to rely on the uncertainties in relation to these specific matters as a defence to enforcement action by HMRC but in general, the law is quite clear and ignorance of the law is, as usual, no defence.
Good administration is vital. If the HMRC NMW Risk Unit investigates a business the employer can expect its payroll and records to be scrutinised and interviews to be carried out with members of staff. Like most things, record-keeping is key here. HMRC have set out the steps employers should take in order to mitigate against the risk of paying below NMW at - https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/262269/131125_Social_Care_Evaluation_2013_ReportNov2013PDF.PDF
If, despite good administration, an investigation establishes an underpayment, HMRC will issue a Notice of Underpayment (NOU), requiring the employer to repay to the worker the amount of arrears outstanding as a result of the underpayment. The amount to be repaid will be specified in the NOU.
Enforcement action is punitive, not just compensatory and so the second step facing the employer will be a civil penalty. Since March 2014, the consequences of not keeping on top of the NMW rules have got significantly worse for employers. The penalty for non-compliance has increased from 50% to 100% of the total underpayment and the maximum penalty has increased from £5,000 to £20,000. Employers who have underpayments of more than £20,000 will pay the higher level of penalty and receive one NoU per worker or group of workers who have been underpaid by £20,000 or more.
All in all, getting it wrong can be drastic. Persistent or particularly significant breaches can lead to criminal enforcement for failing to pay NMW, failing to preserve NMW records, false entries in NM records, obstructing NMW officers and refusals to co-operate.
Returning to the beginning of this article, the consequences of not paying NMW can extend well beyond the payment of fines. The naming and shaming tactic of HMRC is on the increase and can harm the goodwill of a business well beyond the value of a £20,000 fine.
Please click here to view Jessica Smeaton's profile.
