Out-Law / Your Daily Need-To-Know

Employers urged to audit pay practices

Out-Law News | 26 Sep 2018 | 2:56 pm | 2 min. read

Employers have been called on to audit their existing pay practices after a recent government report highlighted the attention being given to business' compliance with National Minimum Wage (NMW) legislation in the UK.

The report, published by the Department for Business, Energy & Industrial Strategy (BEIS), detailed the increased resources being given to HM Revenue & Customs (HMRC) to monitor compliance and enforce NMW laws. It also provided insight into the work being done by HMRC to raise employees' awareness of their pay rights.

The report confirmed record figures previously disclosed by HMRC that it had identified £15.6 million in pay that employers owed to more than 200,000 workers last year. Employers can be 'named and shamed' if they are found to have underpaid the NMW, and fined up to 200% of the arrears. In some cases, employers can also face criminal prosecution. 

In its report, BEIS said that it is "reviewing the effectiveness" of its naming scheme and its "general approach to enforcement". It said it wants to be able to "calculate the value of the current enforcement approach and to be able to accurately determine the relative value of one enforcement approach over another".

Employment law expert Jon Fisher of Pinsent Masons, the law firm behind Out-Law.com, said that while employers have a duty to meet their legal obligations under NMW laws, concerns have been raised about HMRC's focus on technical breaches.

"Sir David Metcalf, the director of labour market enforcement, has previously acknowledged concerns about HMRC’s approach to enforcement, which appears not to distinguish between technical breaches of the complex legal requirements and intentional flouting of the law," Fisher said.

"However, whilst there are references to the approach being reviewed, there is no firm commitment to altering this approach and there is no good news in the report for those who are currently subject to an investigation. This reinforces the need for employers to audit their existing pay practices to ensure that they are compliant before HMRC kick off an investigation," he said.

The BEIS report highlighted the fact that the government increased the budget given to HMRC to enforce the minimum wage by more than £5 million last year, with the budget increasing from £20m in 2016/17 to £25.3m in 2017/18. A further increase in the budget to £26.3m for 2018/19 has been provided.

The report also identified the various activities undertaken by the government and HMRC to raise employees' awareness of their minimum wage entitlements.

Emma Malczewski, also an employment law expert at Pinsent Masons, said the activities had contributed to HMRC's record figures for enforcement for 2017/18.

"The government’s strategy of ‘Promote, Prevent and Respond’ is utilising webinars, emails, text messages and the option of voluntary declarations to engage with employers and workers in relation to potential NMW breaches," Malczewski said. "This combined with the ACAS helpline and HMRC’s complaints form has helped HMRC to identify this record level of underpayment."

"The strike rate – the number of investigations which result in a 'notice of underpayment' being issued – where an investigation is initiated based on a sector-focus varies. The average strike rate is 39% and a notably high strike rate has been recorded in the retail sector of 46%," she said.

"HMRC has a 100% response rate to employee complaints and so, in light of the above, employers can be sure that questions will be asked and a 'notice of underpayment' could well be issued depending on their response," Malczewski said.