More than 200 companies have been outed by the government in its latest ‘name and shame’ list after failing to pay their workers almost £5 million in wages due. So, why do major firms get caught not paying the national minimum wage? We’ll consider that.
People Management reports on the Revenue’s list which names companies ranging from major high street brands to small businesses and sole traders. The government’s press release quotes Minister for Enterprise, Markets and Small Business, Kevin Hollinrake, who says: ‘Paying the legal minimum wage is non-negotiable and all businesses, whatever their size, should know better than to short-change hard-working staff. Most businesses do the right thing and look after their employees, but we’re sending a clear message to the minority who ignore the law: pay your staff properly or you’ll face the consequences’. The press release goes on to say that all of the businesses named in the list have now paid back what they owe to their staff and all have faced financial penalties as a result of the breaches.
In the vast majority of those cases the breaches were inadvertent, technical mistakes. So how big are the fines and is there any leeway for genuine errors? To help with that, from Leeds, Jon Fisher:
Jon Fisher: “The standard penalty is 200% of the arrears and there's no real discretion about that. That's what you'll get charged. Historic arrears, going back several years, there were slightly lower percentages in place but certainly, more recent arrears, it’s 200% of the arrears and then you’ve got to pay the arrears themselves. They're also subject to an uplift based on the current rate of national minimum wage, so effectively, you revalue those arrears at the current rate of national minimum wage. Then, for many employers, the worst thing is the naming and shaming which is not a direct financial penalty but, obviously, has a big reputational impact.”
Joe Glavina: “Can I ask you about the Revenue’s attitude towards breaches because often these are inadvertent mistakes? Does the Revenue have the discretion and, if so, how do they exercise it in your experience?”
Jon Fisher: “In theory they have a discretion but they very rarely seem to exercise. In the most recent round there was a specific statement from the government when they issued the naming and shaming list that many of these breaches were not intentional, but that's no excuse and that's very much the attitude they take, that this list is supposed to be educational for other employers, as well as being punishment for those who've actually breached. There’s one small exemption which is specifically written in regarding salary sacrifice. So, as long as you meet certain conditions, which include that you've not been penalised before, found guilty before of breaches of national minimum wage, and if the only breach is related to salary sacrifice deductions, they won't name and shame you and they won't subject you to a financial penalty but you will have to pay the arrears and pay the uplift.”
Joe Glavina: “Can we turn to the types of mistakes being made. What are they, typically?”
Jon Fisher: “In the most recent list they said 40% of the arrears were due to deductions being made which shouldn't have been made. Another 40% seems to be just admin errors. Then 20% were down to failure to pay the correct apprenticeship rate. The most common error we still see, still, relates to salary sacrifice. So, HMRC will look at pay after the salary sacrifice when it comes to assessing where the national minimum wage has been paid, and payroll systems really seem to struggle to cope with this. So, because national minimum wage is assessed on a pay period by pay period basis, just because you comply in one pay period doesn't mean you have done the next, and payroll systems seems to struggle to monitor whether people on low earnings have sacrificed salary below that national minimum wage level. So, that's the most common error. Other ones simply are errors being made in payroll, just more general errors, people just not being paid the right amount in the right month, working time errors, that's people not being paid properly for all the hours they work because there's extra time that they work which hasn't been properly recorded and therefore paid. Uniform is another one, and that's where there are uniform requirements but a uniform isn't provided by the employer. So, effectively, the employee needs to go out and buy some item of clothing, or shoes, in order to wear to comply with uniform policy, and the cost of that can be taken off their pay before you start assessing national minimum wage compliance. So, if you're a low paid worker working part time in retail, for example, and you have to go and buy a pair of shoes to comply with the uniform policy, that will almost certainly bring you below national minimum wage for that period. As a result many employers are changing the uniform policy, and relaxing the uniform policy, such that people just wear clothing that they will already own rather than to specifically buy something in order to comply with that policy.”
Joe Glavina: “Appearing on the list, being named and shamed, is obviously bad press so is there any sort of appeal process to avoid that outcome if the mistakes are simply admin errors?”
Jon Fisher: “There is, for what it's worth, but I've never heard of a successful appeal against naming and shaming because as I said before, whether it's intentional or not doesn't seem to matter. So, it's a technical breach, it was unintentional, it was a payroll error, our headline rates are far above national minimum wage. None of that would be considered a relevant factor when it comes to whether you got named and shamed or not. So, it's not something you rely on in terms of being able to avoid the naming and shaming. If there has been a breach, and it's not salary sacrifice related, you should just assume that you're going to be named and shamed. You can try with an appeal, but I would have no confidence it would actually succeed.”
Joe Glavina: “So, if there’s one key point for the viewers to take from this what would it be?”
Jon Fisher: “I think salary sacrifice is the big message. I've already mentioned it, but it's still the most common factor in any of this and it seems perverse because, obviously, salary sacrifice is beneficial to employees for the most part, as well as to employers, and other lower paid employees shouldn’t be punished by not being able to take advantage of it but, nevertheless, it's the thing that requires a lot of scrutiny and, remember, as soon as HMRC start to investigate, then any corrections you make after that on a voluntary basis are effectively ignored. So, if on day one of the investigation there is a breach, you are going to be penalised and you are going to be named and shamed for that breach. So, you need to sort these things out before HMRC get in contact with you and sort it out properly and fully and only then would you be safe in the event of any future audit.”
It’s worth saying that we’ve noticed a rise in the take-up of salary sacrifice recently, linked to cost-of-living crisis, and it’s something we covered in this programme in June with help from tax specialist Chris Thomas. Helpfully, the tax team has produced a guide for employers on this – ‘Salary sacrifice: a guide for employers.’ We’ve put a link to both the programme, and the guide, in the transcript of this programme for you.
LINKS
Link to HRNews programme: ‘UK firms’ financial help with cost-of-living crisis waning, survey shows’
Link to Pinsent Masons’ salary sacrifice guide for employers
