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The Department of Business and Trade recently issued its latest list of over 200 employers which have failed to pay at least the minimum wage.
By the government’s reckoning, the underpayments uncovered amount to almost £5m, leaving 63,000 workers out of pocket. The employers range from large High Street names to sole traders, in what the government has declared (in a shameless copy and paste from last year’s press release) as “a clear message that no employer is exempt from paying their workers the statutory minimum wage”.
Less stridently, and potentially somewhat gallingly for the employers named, nestled in the midst of the press release is the acknowledgement that these breaches relate to investigations concluded by HMRC between 2017 and 2019, so there is a fairly significant, not to say inexcusable, time lag between the breaches in the question and being hauled over the coals for them. For businesses where ESG factors are of relevance, this sort of negative publicity may have serious consequences of far more significance than any financial penalties imposed.
So given the enormous range of employers on the list – showing that size or access to administrative resources don’t necessarily mean employers are immune from making mistakes – what are the key learnings for employers to make sure they don’t end up on the list in the future?
Be aware that inadvertently paying below the minimum wage is surprisingly easy
Many a business has been caught out by a seemingly innocuous practice (e.g staff paying for any uniform in connection with their employment), which has dipped their employees under the minimum wage rates. This is ever more likely as the minimum rates increase and the “cushion” which employers thought they had between what they pay and the minimum, is eroded.
Our blog from last year (see here) gives detailed commentary on this and six Pitfalls to Avoid, all of which remain valid, but the long and the short of it is that the rules are complex and inadvertent breach is easier than it ought to be. We recommend that any business with staff paid at or near the National Living Wage/National Minimum Wage rates should take some pre-emptive steps to see if this might be an issue.
HMRC has budget to splurge on exposing underpayments
In this latest press release, the government reveals that since 2015, the budget for minimum wage enforcement has doubled, with the government having ordered employers to repay over £100 million to 1 million workers (or put more prosaically, an average return of about £100 per employee, with this latest report pointing to a recovery of less than £80 per head half a decade after the original underpayment).
In its own words:
“The government is determined to ensure workers are paid for their hard work, having increased the National Living Wage by a record amount in April 2023. This led to the lowest paid workers in the UK seeing a rise of 9.7%, keeping the government on track to achieve its manifesto commitment for the National Living Wage to equal two-thirds of median earnings by 2024, provided economic conditions allow”.
Leaving aside the echoing wriggle-room created by those last four words, this is an honourable endeavour.
Ensuring that employers pay their staff fairly and in accordance with the minimum rates is a good thing. But as we have mentioned before, the naming and shaming approach doesn’t differentiate between those who do so intentionally and those who unwittingly fall foul of the rules (as per point 1 above). It also fails to credit any employers which subsequently fix the issue in the potentially multi-year period between breach and being pilloried by the Department of Business and Trade. One would have thought that the taking of steps to cure a failure to pay the NMW, both in arrears and looking forward, should be positively incentivised by an exclusion from the Naughty List (at least pending any recurrence). What would be the view of employees in the Department if they were suddenly and publicly hauled over the coals for the policy failures or other defaults by their predecessors of 5 or 6 years earlier?
As such, given there is a high chance that HMRC will eventually flush out any mistakes, it is of course, much better to be on the front foot on these matters in order to spot any potential under-payments and take pro-active steps to rectify, rather than waiting for HMRC to knock on the door in a less than sympathetic manner early one morning and then spending the next 5 years worrying about the fall-out.
Please do feel free to contact James Pike or your usual Squire Patton Boggs contact if you have any questions.
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