Iceland case shows HMRC's 'tough stance' on minimum wage laws

Out-Law News | 03 Jan 2019 | 12:59 pm | 1 min. read

The scrutiny that an Iceland Foods staff savings scheme has come in for shows that businesses can expect HM Revenue & Customs (HMRC) to enforce rules on the National Minimum Wage (NMW) strictly, a tax expert has said.

The Times reported earlier this week that HMRC has alleged that Iceland Foods has been underpaying its staff under NMW laws due to how the company operates a Christmas savings scheme offered to employees. The savings scheme allows employees to put aside money from their weekly pay packets which can be reclaimed on demand.

According to the report, Iceland is also accused of breaching NMW rules in relation to guidance it issued to shop staff to wear 'sensible shoes'. HMRC said that the pay for store staff who chose to buy their own footwear would have fallen below the minimum wage in the weeks that the shoes were purchased and has argued that Iceland should refund store staff for two shoe purchases a year, at a notional value of £20 each, going back six years, according to the Times.

Employers can be fined up to 200% of arrears for underpaying staff, and may face criminal prosecution in some circumstances. Several FTSE100 companies, a S&P500 company, a premiership rugby club and two football clubs playing in the English Championship are among the employers that have received fines.

Employers in breach of the regulations will also be 'named and shamed' by HMRC. Recent reports have seen employers named for deducting the cost of uniforms from wages, or for using incorrect time periods for calculating pay.

According to the Times, Iceland Foods faces a potential £21 million compensation bill unless it changes how the scheme operates. Iceland Foods has said it will challenge HMRC's claim, however, according to subsequent media reports.

Steven Porter, tax investigations expert at Pinsent Masons, the law firm behind Out-Law.com, said: "HMRC has got the bit between its teeth when it comes to National Minimum Wage rules and looks determined to pursue anything it sees as a breach. HMRC are taking a much tougher stance on the National Minimum Wage, even over simple technical breaches."

"Much of the difficulty arises from HMRC's policing of National Minimum Wage as they seemingly draw no distinction between technical breaches arising from uncertainty in the law and its application and deliberate underpayments. Iceland has previously been open with HMRC's policing of its National Minimum Wage affairs and is understandably disgruntled given the employees do actually receive the money they saved via the Christmas savings scheme," he said.

"The rules surrounding the National Minimum Wage can be fiendishly complex and difficult to navigate for businesses. However, failure to do so can result in crippling fines," Porter said.

According to Pinsent Masons, the number of investigations opened by HMRC into employers over potential breaches of the NMW increased 43% to 3,975 for the year ending 31 March 2018, up from 2,775 in 2016/17.