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National minimum wage naming scheme suspended

Out-Law News | 12 Jun 2019 | 10:20 am | 2 min. read

A scheme for the naming of employers found to be in breach of the UK's national minimum wage (NMW) has been suspended while the government reviews the scheme.

The review will "ensure that [the scheme] continues effectively to support minimum wage compliance," Kelly Tolhurst, parliamentary under-secretary of state for business, energy and industrial strategy confirmed in the House of Commons last week. She was responding to an urgent question from Labour MP Stephanie Peacock.

In December 2018 the Department for Business, Energy and Industrial Strategy (BEIS) began a consultation on possible changes to the NMW rules in relation to salaried workers and salary sacrifice schemes. It asked for input from employers on areas where they felt NMW rules "unfairly penalise them without generating any benefit or protection for workers".

Steven Porter, a tax disputes expert at Pinsent Masons, the law firm behind Out-Law.com, said: "One of the concerns with NMW is that the rules are complex and naming and shaming has applied whenever NMW rules are breached, even if the breach seems more of a technical breach which has not resulted in any economic disadvantage for the employee. HM Revenue & Customs (HMRC) appears to be determined to pursue anything it sees as a breach and seems to be taking a much tougher stance, even over simple technical breaches".

Earlier this year, HM Revenue & Customs (HMRC) was alleging that Iceland Foods had been underpaying its staff under NMW laws due to how the company operated a Christmas savings scheme, according to press reports. In April the employment tribunal decided that Middlesbrough Football Club's arrangements with low paid employees to spread the cost of football season tickets did not breach NMW rules.

"I want to make sure that when we name and shame organisations, we understand what the detriment is and how much the detriment is. We need to make sure that, when we report these companies, we are reporting not just big names to grab a headline, but meaningful information that helps to advise and educate employers and, really importantly, educates workers so that they understand that, where there is a detriment, they can take action," Kelly Tollhurst said in the House of Commons.

Porter Steven

Steven Porter

Partner

HMRC appears to be determined to pursue anything it sees as a breach and seems to be taking a much tougher stance, even over simple technical breaches

"If the naming and shaming scheme is targeted only at deliberate breaches, that should prove to be good news for both employers and HMRC," said Jon Fisher, an employment law expert at Pinsent Masons. 

"In my experience, employers are often more concerned with the reputational damage which will be caused by being named and shamed than they are with the financial penalties. They feel that it is unjust for them to be named for what they regard as inadvertent beaches of very complex regulations, particularly as they are named alongside employers who have deliberately flouted the rules and the distinction between the different types of breach is not obvious to the public," he said.  

"The current regime can lead employers to fight HMRC tooth and nail over technical points, causing delay and wasted resources on both sides. A more focused naming and shaming scheme would allow employers to take an approach which was more proportionate to the sums at stake, which would be likely to speed up investigations and allow HMRC to focus more resources on the most serious cases," Fisher said.  

As well as being 'named and shamed' by HMRC, employers can be fined up to 200% of arrears for NMW breaches, and may face criminal prosecution in some circumstances. However, there have been only 14 prosecutions to date, according to Kelly Tollhurst.

Fisher Jon

Jon Fisher

Partner

A more focused naming and shaming scheme would allow employers to take an approach which was more proportionate to the sums at stake, which would be likely to speed up investigations and allow HMRC to focus more resources on the most serious cases.

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.

Kelly Tollhurst said that last year, HMRC issued record financial penalties to more than 1,000 non-compliant employers to the value of £17 million.  She said that the budget for NMW enforcement has been doubled to £27.4 million in 2019-20, up from £13.2 million in 2015-16.