National Minimum Wage penalties on the rise…

Higher penalties are being imposed on employers who fail to pay National Minimum Wage rates.

Employers could be publicly named and shamed by the Department for Business, Innovation and Skills or even face prosecution.

Why do we have a National Minimum Wage?

National Minimum Wage legislation was essentially introduced to stop exploitation of workers and to provide a fair labour market. The legislation sets out the pay rates per hour which employers must pay their employees. There are three age-based rates and an apprentice rate.

Each year, National Minimum Wage (NMW) rates are reviewed by the Low Pay Commission, which makes recommendations for change to the Government. Most employers comply with these rates, with many paying above the statutory minimum.  However, there are a minority of employers who do not pay the NMW, which is illegal.

Who is entitled to the National Minimum Wage?

Normally, any worker who is aged above the compulsory school leaving age (currently 17 years, but due to rise to 18 years in 2015) is entitled to be paid at least the minimum NMW.  This is providing that they work in the UK and have a verbal, written or implied contract of employment (or are undertaking an apprenticeship).

There are some exceptions, such as volunteers, company directors, members of the armed forces, the self-employed, au pairs, prisoners, and those living and working in a religious community. Special rules also apply to workers who are employed offshore.

Who enforces NMW legislation?

The Department for Business, Innovation and Skills is responsible for minimum wage policy, whilst HM Revenue & Customs (HMRC) is responsible for enforcing it. These two Government Departments work very closely together, giving advice to employers to make sure they comply with the regulations.

HMRC statistics show that under current legislation, more than 26,000 workers were paid less than the national minimum wage and received £4 million between them following HMRC investigations.

In the past eighteen months alone, almost 17,000 complaints have been investigated. Over 700 employers have received automatic penalty charges. Of these, 51 were fined the maximum penalty of £5,000. An average of £300 in back pay was given to each affected worker. HMRC statistics also show that:

• As a result of investigations into 40 work experience/intern complaints, arrears of £200,000 were identified in the tax year 2012/2013 for 167 employees.
• Within the last eighteen months, a multi-outlet retailer was made to repay £170,000 to more than 6,000 employees, after it ordered its workers to buy specific clothing from its own range to wear as a uniform. Additionally, more than £193,000 in arrears was paid to almost 3,500 employees of a national retailer who had not paid its workers for attending before and after store opening hours.
• Around £2.5 million in arrears has been paid out to 868 apprentices since 2010.
• During the past 14 years, more than £49 million of unpaid wages has been identified and returned to 203,000 workers.

What penalties can employers expect if they do not pay the NMW?

The Government intends to increase the penalties faced by employers when failing to pay NMW rates from February 2014. Fines levied on an employer will be substantially increased, making the legislation considerably stronger.

In addition to the penalties imposed, employers will be publicly named and shamed by the Department for Business, Innovation and Skills.  Employers involved in more serious cases will also face prosecution.

Where HM Revenue and Customs issue a “Notice of Underpayment” (naming all workers who have been underpaid), the employer must pay each worker their unpaid wages, together with a penalty calculated as 100% of the total underpayment (previously this was set at 50% of the total underpayment).  This back-payment and penalty is subject to a maximum of £20,000 (an increase from £5,000).

These increases will be implemented under The National Minimum Wage (Variation of Financial Penalty) Regulations 2014. It had been assumed that just one maximum fine of £20,000 – plus the penalty – would be imposed on rogue employers. But the Government is to introduce legislation in the Queen’s speech to ensure that the new fine can be levied for every underpaid worker.

Where can I get further advice and support?

Our HR Advice Line can provide support and advice with queries relating to this or any other employment-related topic. Please telephone an Advisor, on 0845 073 0240, who will be happy to assist you.