Tougher penalties on the way for companies that do not pay UK minimum wage

Out-Law News | 02 Sep 2015 | 11:27 am | 2 min. read

The maximum fine for companies that do not pay the National Minimum Wage (NMW) or new National Living Wage (NLW) will be doubled, and a dedicated enforcement team set up to ensure compliance, the UK government has announced.

It will consult later this year on the creation of a new criminal offence of aggravated breach of labour market legislation, to include deliberate breaches of the NMW and the NLW when it is introduced in April 2016. More money will also be made available for enforcement in 2016/17, with further increases anticipated as part of the next Spending Review, according to the announcement.

Business secretary Sajid Javid said that the measures announced would "ensure those who do try and cheat staff out of pay will feel the full force of the law".

A new NLW, to be set at £7.20 an hour, will be introduced in April 2016 following a surprise announcement by the chancellor at July's Summer Budget. The government intends for this to rise to £9 an hour by 2020. All employees aged 25 and over will be entitled to the NLW, while younger employees will continue to receive the NMW. This is currently set at £6.50 for those aged 21 and over, and will rise to £6.70 for those workers next month.

The NMW is currently enforced by HM Revenue and Customs (HMRC) on behalf of the Department for Business, Innovation and Skills (BIS), through a targeted enforcement programme focused on high-risk sectors. From next year, the enforcement budget will be increased and a new team of compliance officers established within HMRC to investigate and take forward criminal prosecutions in relation to the most serious cases of employers not paying the minimum rates.

This new team will have the power to use all existing sanctions for non-compliance, including penalties, prosecutions and naming and shaming the most exploitative employers. In addition, from next month, individuals that are found guilty of failing to pay the minimum wage will be considered for disqualification from being a company director for up to 15 years.

The financial penalty for employers who fail to pay staff at least the minimum wage to which they are legally entitled will double from 100% of arrears to 200% of arrears, although the overall maximum penalty will remain £20,000 per worker, according to the announcement. This penalty will be halved if employers pay within 14 days.

The penalty for employers that breached NMW requirements was increased under the previous government from 50% of arrears to 100% of arrears, while 'naming and shaming' non-compliant employers began in 2013. In financial year 2014/15, HMRC investigated 2,204 and found arrears of over £3.29 million for 26,318 workers in 735 of those cases.

The government also intends to appoint a new 'Labour Market Enforcement Director', who will oversee enforcement of the NMW as well as the Employment Agency Standards Inspectorate and the Gangmasters Licensing Authority, which is part of the Home Office and responsible for tackling labour market exploitation. As part of this new role, the appointed person will be able to set enforcement priorities based on a single view of the intelligence about exploitation and non-compliance, according to the announcement.