National Minimum Wage (‘NMW’) has been in force since 1999 and it imposes a legal requirement upon employers to provide a minimum rate of pay. Presently this is set at £6.31 for people 21 and older, £5.03 for people aged 18-20, £3.72 for people aged 16-17, and £2.68 for apprentices aged under 19 or in their first year of apprenticeship; this figure is subject to review and change from October of each year.
As a legal right it is enforceable before the Courts and the Employment Tribunals, but is also policed by the Government via HMRC and BIS (formerly DTI).
However, despite the clarity of rules and the fact that the requirement to pay NMW has been long established, some employers continue to ignore it and pay under the NMW. The Government has therefore set about toughening up the sanctions in order to force compliance; the new rules are expected to come into force in February 2014.
Presently penalties are payable where a breach of the NMW is found. They are capped at 50% of the underpayment, and subject to a maximum £5,000 per person paid under the minimum wage, and subject to a 50% reduction if paid within 14 days of notice being provided by the HMRC.
Under the new rules, the government intends to increase the cap so that the fine will be equal to 100% of the underpayment for each employee. It will also increase the fine so that the sum of up to £20,000 per person found to be paid under the NMW. It is unclear whether the discount for early payment of any penalty will be payable.
It should be noted that the penalty is payable IN ADDITION to the requirement that the employer pays any employee the sums by which they have been underpaid.
Naming and Shaming
In 2013 the Government began “naming and shaming” employers that paid under the NMW; clearly this caused damage to the employers reputation making it increasingly difficult for them to attract new employees and also win new contracts for work.
However, under the 2013 scheme, a matter would only be referred to BIS where the employer had arrears of £2,000 or greater and an average of £500 per affected employee. Under the new rules all employers who fail to respond to a Notice of Underpayment issued by the HMRC within 28 days will be notified to BIS. The employer will then have 14 days to make representations to BIS as to why they should not be subject to naming and shaming; the only considerations that BIS will take into consideration are: i) where naming by BIS carries a risk of personal harm to an individual or their family, ii) there are national security risks associated with naming, iii) there are other factors which suggest that it would not be in the public interest to name the employer or company. Failure to submit representations, or failure to submit successful representations will see the employer “named and shamed” in the next BIS press release.
All employers should review their pay annually to ensure that it remains compliant with the NMW regulations, as a failure to do so could be very expensive and damaging to their business. Of course, the financial implications do not even start to consider the administrative headache that would also ensue in dealing with the HMRC, BIS, and their enforcement teams should they suspect that an underpayment of NMW is occurring or has occurred in the past, or indeed in dealing with any court/tribunal claim that may be issued.
For the avoidance of doubt, given that the NMW becomes an implied contractual term, an employee can bring a claim up to 6 years from the date of the underpayment.
If you employ others and you are unsure as to what constitutes payments of NMW, or you need further advice as to whether this applies to you, then please contact us on 024 7653 1532.