Could your business be named and shamed?

“Retail giants W H Smith, Marks & Spencer and Argos are among firms who have been “named and shamed” by the government for breaking the minimum wage law.

Almost £5m was found to be owed to around 63,000 workers following investigations by Her Majesty’s Revenue and Customs dating back as far as 2017.

These named employers have been made to pay back what they owed, and in addition were fined around £7m.”

https://www.independent.co.uk/news/uk/home-news/minimum-wage-wh-smith-lloyds-argos-b2361300.html

When my colleague sent me this article I was taken aback. How could some of our largest and best-established retailers fall foul of the most basic employment law?

The law on the National Minimum Wage (NMW) is not simply about paying a minimum amount per hour worked. In fact, there are common pitfalls which, if breached, can land a business into seriously hot HMRC water.

What are the consequences if an employer pays workers less than the National Minimum Wage?

Financial penalties: The employer may be liable to pay financial penalties to the Secretary of State for breaching the law. The penalty is set at 200% of the total underpayment. There is a minimum payment of £100 and a maximum payment of £20,000. It is important to note that the maximum payment applies for each worker who has been underpaid, not to the total payment for all workers. Therefore getting it wrong can be a costly lesson indeed.

Back payment of wages: The employer may be required to make up the difference between what the worker was paid and the minimum wage entitlement. This could involve back-paying the affected workers for any unpaid wages, including any arrears over the relevant pay reference period.

Naming and shaming: Employers who fail to comply with the minimum wage regulations can be publicly named by The Department for Business, Energy and Industrial Strategy. The naming and shaming scheme aims to expose non-compliant employers and act as a deterrent to others. It is as a result of this power that we have come to know about the household names mentioned in this article.

Civil claims and employment tribunal cases: Workers who have been underpaid can also pursue civil claims or employment tribunal cases against their employer to recover the unpaid wages. The employment tribunal has the authority to determine the amount owed and make a judgment accordingly.

Criminal prosecution: In some cases of serious or deliberate non-compliance, criminal prosecution may be pursued. If found guilty, the employer can face unlimited fines and, in extreme cases, imprisonment. This is typically reserved for the most severe cases of non-compliance or repeated offenses.

What are 5 common pitfalls that you should be aware of?

The National Minimum Wage regulations in the UK are in place to ensure that workers are paid fairly and receive at least the minimum wage for the work they do. While most employers strive to comply with these regulations, inadvertent breaches can occur due to various reasons. Here are some examples of how a UK employer could inadvertently breach the National Minimum Wage regulations:

1. Unpaid Working Time: If an employer fails to account for all the time a worker spends working, including overtime, training, or even certain types of travel time, it can lead to an inadvertent breach. For example, if a mobile carer, electrician or double glazing salesman travels between different residential homes they should be paid at least the NMW for their travel as this is classed as working time.

2. Deductions from Wages: Employers may sometimes make unauthorised deductions from employee wages, which can lead to the breach of minimum wage regulations. Deductions for uniforms, tools, or other work-related expenses that bring a worker’s wage below the minimum rate are generally not allowed unless explicitly permitted by law.

Under the NMW regulations, the cost of any uniform required by the employer for work must not reduce an employee's pay below the applicable minimum wage rate. If an employer requires workers to purchase their own uniforms and the cost of those uniforms causes the worker’s pay to fall below the minimum wage, it would be considered a breach of the regulations.

Let's consider an example:

Scenario: A retail store, HW Jones, requires its employees to wear a specific uniform consisting of a branded shirt, trousers, and shoes. The employer asks the employees to purchase the uniform themselves and deducts the cost of the uniform from their wages.

Employee A's hourly rate is the current NMW of £10.42, and they work 40 hours per week. The total cost of the uniform is £100.

Without Uniform Deduction:

Employee A's weekly pay: £10.42/hour x 40 hours = £416.80 (£10.42 p/h)

With Uniform Deduction:

Employee A's weekly pay: (£10.42/hour x 40 hours) - £100 = £316.80 (£7.92 p/h)

In this scenario, deducting the cost of the uniform from Employee A's wages could result in their pay falling below the minimum wage requirement if the payments are not made up, this is a breach of the NMW regulations.

To avoid inadvertently breaching the regulations in such cases, the employer should either provide the uniform free of charge or cover the cost themselves. If the employer wishes to recover the cost of the uniform, they must ensure that the employee's pay remains above the minimum wage threshold after the deduction.

3. Underpayment of Apprentices: Apprentices are entitled to a different minimum wage rate depending on their age and the stage of their apprenticeship. If an employer fails to adjust the apprentice's wage according to the correct rate as they progress through their apprenticeship, it can inadvertently result in underpayment and breach of the regulations. Here is the most up to date position on what to pay apprentices:

Aged 16 to 18

The current National Minimum Wage rate for an apprentice is £5.28 per hour.

Aged 19 or over and in their first year

The current National Minimum Wage rate for an apprentice is £5.28 per hour.

Aged 19 or over and have completed your first year

Once the first year is complete and Apprentice is entitled to the National Minimum Wage or National Living Wage rate for their age.

4. Unpaid or Insufficient ‘Breaks’: Workers are entitled to rest breaks during their working hours, and in some cases, these breaks may need to be paid where the worker actually performs work or is on standby. If an employer denies workers their entitled breaks or fails to compensate them for working during their breaks, it can result in a breach of the regulations.

5. The accommodation offset

Are you an employer who provides accommodation to your workers?

As a general rule, the value of most benefits in kind will not count towards the NMW. E.g. an employer cannot say that they will pay for meals and then deduct this from the national minimum wage.   However, the exception to this is that the value of any accommodation provided by the employer up to the “accommodation allowance’’ can be off-set.  This allowance is currently £63.70 a week and changes annually.  This allowance may be taken into account as follows: 

Where accommodation is provided free of charge, a sum equal to the accommodation allowance can be added to the total remuneration when calculating pay for NMW purposes. 

Where a worker pays rent that is equal to or less than the accommodation allowance, this will not impact the NMW calculation. 

Where a worker pays rent that is greater than the accommodation allowance, the amount charged in excess of the allowance should be treated as a deduction that reduces pay for NMW purposes (see above). In such circumstances, the rent may need to be reduced or the hourly rate increased, in order to ensure the worker is receiving at least the NMW. 

The thrust of this provision is to balance the fact the employee is benefitting from accommodation but not to disadvantage their pay unreasonably.

The above applies irrespective of whether rent is paid as a deduction straight from wages or by way of a separate payment from the worker to the employer. It is worth noting that the accommodation allowance or offset includes not only rent but also any charges for utilities like gas, electric and water. 

What to do to protect yourself

To avoid inadvertently breaching the national minimum wage regulations, employers should familiarise themselves with the current legislation, regularly review their payroll practices, maintain accurate records of working hours, properly classify workers, and seek legal advice if needed. It's crucial to prioritise compliance to ensure fair treatment and avoid potential penalties or legal consequences.

If you are unsure about your NMW obligations as an employer or you are an HR manager with a live scenario please contact me at Kalpesh.Nakeshree@warekay.co.uk or via phone on 01904 716050 and I will be happy to assist.

Similarly, if you would like to receive more helpful articles from my team please let me know.