The Government has announced the names of 37 employers who failed to pay their workers the national minimum wage. As a result, HMRC has issued financial penalties totalling £51,000 for underpayment of wages which amounted to £177,000. The employers included high-street retailer H&M and service station operator Welcome Break. Unsurprisingly, the national media ran with the story, which could lead to long-term reputational damage.
How can your business ensure it meets its obligations to pay at least the national minimum wage and avoid being one of those who are named and shamed?
The national minimum wage
First, you need to understand the national minimum wage and its obligations. The national minimum wage was introduced on 1 April 1999 by the National Minimum Wage Act 1998. All workers in the UK who have ceased to be of compulsory school age qualify to be paid a rate not less than the national minimum wage.
The legislation specifically applies to workers, being a very wide definition that seeks to only exclude those individuals that are genuinely self-employed. It includes foreign workers while working in the UK, regardless of how long that period of time may be. Importantly, employers and employees cannot opt out of the national minimum wage.
How much is it?
The rate of the national minimum wage applicable for a particular worker is dependent upon which category they fall under:
- Standard (adult) rate: for workers aged 21 years and above is currently £6.50 per hour;
- Youth development rate: for a worker who has attained the age of 18 but not 21 is currently £5.13 per hour;
- Young workers' rate: for a worker who has ceased to be of compulsory school age but has not yet reached the age of 18 is currently £3.79 per hour; and
- Apprentice rate: for individuals who are employed under a contract of apprenticeship is currently £2.68 per hour.
Calculating the national minimum wage
The rate of pay a worker receives is calculated by taking pay divided by the working time. However, in calculating the worker's rate of pay an employer must be aware of the specific rules in relation to:
- What counts towards pay
- Deductions that must be made from pay
- What period of time the rate is calculated over
- What counts towards working time
Knowing these rules is necessary when considering how to deal with issues such as workers paying for their own uniform, provision of accommodation, time a worker spends travelling or on call.
Enforcement of the national minimum wage
Employers have a duty to keep records of the hours worked by their workers and the remuneration they have been paid. A worker has the right to see these records, and can take a copy, to establish if they have received the national minimum wage. If the worker identifies that they have been underpaid they can:
- Contact HMRC confidentially to raise a complaint; and/or
- Raise a claim at the employment tribunal for unlawful deduction of wages. Alternatively, they can raise a breach of contract claim at either the employment tribunal or a sheriff/county court.
Separately, a HMRC enforcement officer may also inspect an employer's national minimum wage records, or can require them to be produced on reasonable notice. It is a criminal offence to refuse.
If an underpayment is identified, the HMRC penalty is set at 100% of the total underpayment of the national minimum wage. The minimum penalty is £100 and the maximum penalty is £20,000.
The government intends to introduce legislation to apply the maximum £20,000 penalty to each underpaid worker.
Consequences of failing to pay the national minimum wage
Along with the financial consequences, an employer may also face public exposure on the matter which is clearly an undesirable prospect. In order to avoid being on the receiving end of this double penalty employers must ensure they are compliant in paying workers at least the nation minimum wage. If you have any concerns that your business may not be compliant with the legislative requirements, please do contact one of the members of our employment team who will be able to assist you.