Out-Law / Your Daily Need-To-Know

Warning to UK employers on low paid labour market enforcement

Out-Law News | 15 May 2018 | 4:24 pm | 2 min. read

Firms which exploit or underpay their workers should face higher financial penalties and greater likelihood of criminal prosecution, the UK's director of labour market enforcement has suggested.

Sir David Metcalf was appointed in January 2017 to provide oversight and set strategic priorities for the government's three labour market enforcement agencies: the national minimum wage (NMW) enforcement team within HM Revenue & Customs (HMRC); the Gangmasters and Labour Abuse Authority (GLAA); and the Employment Agency Standards Inspectorate (EAS).

Metcalf's report is the first in an annual exercise, and contains 37 recommendations to improve state-led enforcement of employment rights. He has also recommended better enforcement of holiday pay; requiring that all employees be provided with a 'statement of rights' and a payslip; and 'naming and shaming' businesses whose suppliers break employment law.

The government has already committed to some of Metcalf's recommendations as part of its industrial strategy, and in its response to Matthew Taylor's report into modern working practices. It has consulted on new 'day one' rights for all those classed as workers, including sick pay and holiday rights, and a new right to a payslip. It is also considering extending the remit of the EAS to cover umbrella companies and intermediaries which supply agency workers, as recommended in Metcalf's report.

However, some of Metcalf's recommendations are new, according to employment law expert Matt McDonald of Pinsent Masons, the law firm behind Out-Law.com.

"HMRC is already on the march in a number of sectors when it comes to enforcement of national minimum wage, with the use of fines and 'naming and shaming' on the rise in recent years," he said. "However, this report suggests there is still much more that can be done, and if followed through some of the proposals could cause quite a stir."

"The suggestion of higher fines is surprising, particularly as the potential fines for breaches have already been increased twice in the last five years. Also of note is the rather radical proposal that leading brands will be jointly responsible for non-compliance in their supply chains," he said.

"There is some potential good news for employers.  Many have been critical of HMRC’s approach to the enforcement of National Minimum Wage, complaining that HMRC appear to focus on punishing unintentional technical breaches rather than supporting employers with compliance.  Sir David’s report recommends a change of emphasis, with a compliance-led approach supported by tough enforcement action for repeat offenders and employers who do not co-operate," he said.

In his report, Metcalf recommended that "brand names" sitting at the top of a supply chain should bear "joint responsibility" for non-compliance further down the supply chain. His preferred approach is more "cooperative" and less "adversarial" than the joint and several liability called for by some campaigners and non-governmental organisations, which would allow enforcement agencies to go after the main business independently for the actions of a supplier.

Metcalf's report was published as HMRC and the government's business department kicked off their annual minimum wage awareness campaign, in which they urge workers who suspect that they have been underpaid to file a complaint online. HMRC took action on behalf of more than 200,000 of the UK's lowest paid workers, who were underpaid by a combined £15.6 million, last year, up from £10.9m for more than 98,000 workers the previous year, according to its figures.

The National Minimum Wage is the minimum pay per hour that almost all workers are entitled to. Employers which fail to pay the correct wage to their staff can be fined 200% of the arrears and be publicly 'named and shamed' by HMRC; and can face criminal prosecution in the worst cases. The National Living Wage for those aged 25 and over increased by 33p, to £7.83 per hour, on 1 April 2018; while National Minimum Wage rates for younger staff also increased.