NMW: National Minimum Wage or Never Mind (the legislation needed) We expect compliance from April!

So after 3 years of a relatively quiet legislative period, it appears the Government are making up for lost time. We are now beginning to see something of an Industrial Revolution style ramp up of pushing regulations along the conveyor belt of legislative process in time for the new tax year – with only 7 weeks to produce both the legislation and (one hopes) some guidance!

The latest area to fall victim to this outpouring? National Minimum Wage. Last week, the Government announced changes to what constitutes a National Minimum Wage (NMW) breach and how employers will be held to account.

One of the key changes is to resume the ‘naming and shaming’ of employers failing to pay their workers NMW (1). This will now happen on a more frequent basis and the threshold for naming rogue employers has changed, meaning that now only firms which owe in arrears of more than £500 in NMW payments will be included (2). To put this into context, the threshold was previously £100. Employers that underpay by less than £100 will still have to pay back workers and can face fines of up to 200% of the arrears (1).

As referenced by Jon Fisher, Partner at Pinsent Masons, criticisms of the current rules have previously focused on “the fact that when enforcing NMW, HMRC has taken the same approach to employers who have committed an inadvertent technical breach as they have to those who have deliberately flouted the rules. It has not been possible from the list of employers named as having committed a breach to distinguish between the two” (1). HMRC and BEIS don’t accept there are technical breaches, but the very fact that so many household names have been caught out, points to the bewildering complexity of NMW legislation that is 20 years old and not fit for the 20th century, let alone the 21st.  

Fisher continues that the proposals address some of these challenges, “allowing further information as to why an employer has been named and by reducing the chances of technical breaches. However, for large employers, it remains a concern that the de minimis threshold works on an aggregate basis rather than per employee. Whilst it has been increased from £100 to £500, for those with large workforces this is unlikely to be of use where there are inadvertent system or technical errors which impact a group of staff” (1). So practically, this has little impact for any medium or large employer.

Some employers will welcome the more relaxed rules for who can be a salaried worker (because no one has been aware that the 1998 regulations only allow employees with weekly or monthly pay frequencies to be salaried!). Extending the definition of salaried to include fortnightly and 4-weekly is welcome, but why is it still so prescriptive? If tax and national insurance can cope with any pay frequency from daily to annual, why can’t the definition of salaried workers follow suit? You can find the details of these changes in the press release and consultation response. What you won’t find though is any reference to the fact that to be classed as salaried, you have to have your annual number of hours shown in your contract or other easily accessible document. Plenty of employers have been caught out by this because for many decades their contracts have shown weekly hours and, as there aren’t 52 weeks in the year, HMRC immediately say that these individuals are not salaried and must be paid for every hour in a pay reference period. This means breaches will occur in a long month versus shorter months – watch out as this month there are 29 days of course.

Many of us feel that the changes don’t go far enough, particularly in relation to salary sacrifice and other deduction schemes such as Christmas savings’ plans. What a muddled set of proposals to say that salary sacrifice breaches won’t be penalised, and yet in the same breath say that it is unlawful for an employee to agree to a deduction from net pay, such as to a Christmas savings club, on the basis that this is ‘for the benefit of the employer’ so breaches regulation 12 – even if the funds are ring-fenced.  

This consultation ended nearly a year ago. Since then there have been virtually no discussions with stakeholders that I’m aware of in respect to these proposals. This is a huge missed opportunity to revisit the NMW regulations in the light of how businesses need to operate in the 21st-century, whilst at the same time still offering protection for workers. Why shouldn’t low-paid workers be able to access salary sacrifice schemes and deductions from net pay that are on offer to more highly paid employees? If they have been coerced into agreeing to either of these reductions or deductions, that’s where the regulations should step in to remedy this and when their employers should be named and shamed. But what we have here is a number of proposals that don’t assist employees or employees, haven’t been consulted upon and are supposed to come into effect in the next few weeks. If this is the future of policy-making it will not only damage the economy, but also the contract between employers and employees, as well as that between employers and the policymakers.

We have to look to the creation of the new labour market enforcement agency via the promised Employment Bill and hope that in creating this new compliance body, there will be an opportunity for a root and branch review of NMW legislation. A review that actually involves stakeholders, rather than just the issuing of a press release.

Sources

  1. National Minimum Wage: ‘proportionate’ new rules in force from April
  2. Naming employers who fail to pay minimum wage to be resumed under revamped rules
  3. Consultation response  
  4. Immediate new enforcement policy