An employment partner at Knights has issued some advice after nearly 500 employers were fined more than £10million for failing to pay the National Minimum Wage.
The Government issued their latest “name and shame” list last week after £6million was returned to approximately 42,000 working people.
Employment Partner at Knights, Adele Hayfield said:
“We've had the National Minimum Wage Act and associated Regulations in the UK since the late '90s. This was the first time legislation had been introduced in the UK which ensured a minimum level of pay for virtually all workers as legislation was piecemeal before this. This was followed many years later, with updated National Minimum Wage Regulations in 2015, and then in 2016, by the introduction of the concept of the National Living Wage (a mandatory minimum wage in the UK for workers aged 21 and over). Together the legislation is aimed at providing protection for workers who are the lowest paid workers in the UK.
“If employers get this wrong then there are a range of consequences they could face. First and foremost, HMRC, who are currently the public body that look after this area, can get involved through a worker led complaint or through their own targeted enforcement campaign powers to look at certain sectors or geographical locations that are prone to underpayment.
“When HMRC gets involved, they will liaise with the employer. Often there will be an initial letter that sets out the concerns they have before they meet and inspect certain records concerning the employer’s pay practices and how they pay colleagues. This is then followed by a lengthy process of meetings, interviews and general investigation which, if there is found to have been breaches, can lead to a wide range of consequences.
“In the case of breaches, HMRC will typically issue a Notice of Underpayment to the employer that sets out the total amounts of underpayments they’ll be legally obliged to pay back to workers (which can include former workers). This notice will also set out details of a financial penalty which the employer will be required to pay to HMRC – which is currently set at 200% of the total underpayment to the total number of workers. This is capped at a maximum of £20,000 per employee. This fine’s reduced by 50% should it be paid within a set time period by the employer so we’re always encouraging clients to comply with that to take the benefit of the reduction.
“There’s also a significant risk of reputational damage due to the NMW Naming scheme, where they publish the names of businesses found to be in breach on the Government website. The latest naming round took place on Friday 17th October, where nearly 500 employers were fined over £10 million for failing to pay the National Minimum Wage.
“As well as complaining to HMRC, workers can also bring claims against their employer in respect of breaches through an employment tribunal or a civil court.
“In the most serious cases there is the possibility for criminal enforcement to be taken but these scenarios are thankfully rare and reserved for more serious cases like persistent non-compliance or deliberate falsification of records.
“To avoid falling short, it’s important for organisations to audit their payroll practices to ensure they keep up to speed with the legal requirements around minimum wage so they don't find themselves in a situation where they're making inadvertent technical breaches – because the reputational and financial impact can be significant.
“There are a set of common areas that HMRC will look at when they are considering whether there have been breaches such as:
- Failure to pay the correct rate to apprentices or failure to pay the uprated minimum wage (when someone tips into a higher rate due to their age)
- Unpaid working time which takes pay below the minimum wage such as additional work before and after a worker’s shift / mandatory training / unpaid travel time
- Incorrect work type which has impacted the calculation of National Minimum Wage pay
- Deductions or payments that take pay below the minimum wage such as deductions for work equipment / uniform / salary sacrifice schemes
“When HMRC investigate an employer, they won't just look at one issue; they’ll look at the whole suite of pay practices to assess them against the rules. So, it's around ensuring that your policies and your internal practices are robust. It's ensuring that you have appropriately well-trained colleagues in your people, payroll and finance teams so they know what the rules are so as to avoid any inadvertent breach areas.
“In addition to that, if it is the case that an organisation thinks that a colleague might bring a complaint to the attention of HMRC, we'd always encourage them to go and speak to their lawyers at an early stage because the start of an investigation is the trigger point that is used to determine whether, in principle, a penalty should be imposed on the employer for non-compliance with the minimum wage. So, if any proactive steps can be taken to correct any issues before there is recourse to HMRC, then that will naturally help the situation.”