Employers who fail to pay their staff the National Minimum Wage now risk being fined up to £20,000 as part of a Government clampdown.
Previously, employers found breaking the law were forced to pay the wages shortfall along with a penalty amounting to up to 50% of the total arrears, which was capped at £5,000 for each “notice of underpayment” issued by HMRC. Official figures show there were 736 legal cases in 2012/13 covering 26,500 workers for £3.9m of arrears (or an average of £147 per worker) . And in 708 (i.e. 96%) of those cases, a penalty was imposed and the average penalty was nearly £1,100.
Under new regulations approved by Parliament, which came into force on 7 March 2014, the penalty has been increased to 100% of the unpaid wages, with a cap of £20,000 for each notice of underpayment.
These tougher financial penalties, coupled with new procedures already being operated by HMRC for naming and shaming underpaying employers, mean that employers now run a very big risk in not meeting the legal requirements. The Department for Business, Innovation & Skills did the first naming and shaming of 5 employers on 28 February.
As of October 2013, the National Minimum Wage rates are:
The NMW applies to all paid workers, whether permanent or casual, full time or part-time, paid by the hour or by an annual salary or on a piece-work rate. Genuine volunteers, the genuinely self-employed and company directors are excluded, along with a few other minor categories like family members. But young people doing unpaid work experience outside a formal sponsored programme may well be entitled to the NMW. See the Common Best Practice Code on High Quality Internships from November 2013 which is endorsed by the DBIS and available via its website, as well as the NMW FaceBook page, for more on this.
For many employers, one hidden problem is that time they don’t pay for can sometimes count as working time for NMW purposes. Then, when pay is averaged out across all the hours worked, they are actually paying under the legal minimum. For example, the Employment Appeal Tribunal recently ruled that a care worker was working during her travelling time between each service user she visited and when she slept over several nights a week at the home of 3 young people with Down’s Syndrome as part of her care duties, even though she’d never has to wake up to deal with a problem. Her employer had not regarded any of this as “working time”, though she was paid £40 a week for the 3 sleepovers (each one was worth about £50 at the NMW rate!). These rulings will of course apply to all mobile workers going from job to job, including cleaners, and sleepovers and nightwatches and similar “on call” tasks.
Employers therefore need to audit their working practices and pay arrangements as, at least in certain sectors or types of job, there is quite likely a real risk that they aren’t compliant, even though they think they are OK. And not being legally compliant could mean losing important central or local government contracts, where legal compliance is a condition (the naming and shaming register means this can be checked), as well as having to pay back the employee and pay the penalties too.