National Minimum Wage – Does bad news really come in threes?!

1. The National Minimum Wage (Variation of Financial Penalty) Regulations 2014

The National Minimum Wage (Variation of Financial Penalty) Regulations 2014 (“the Regulations”) came into force on 7 March 2014 which amend the figures currently specified in the National Minimum Wage (NMW) legislation used to calculate financial penalties imposed by HMRC on employers who are found to have underpaid their staff.

As most employers will be aware, where HMRC issues a notice of underpayment identifying that arrears of NMW are owed to the workers, the employer is required to re-pay the amounts the workers have been underpaid by and a financial penalty is also imposed for breach of the NMW legislation. This penalty is calculated as a percentage of the total underpayment, as set out in the notice of underpayment served by HMRC, subject to the minimum and maximum limits. The Regulations which came into force on 7 March increase:

• the percentage figure from 50 per cent to 100 per cent; and
• the figure for the maximum financial penalty from £5,000 to £20,000.

Employers will however be relieved to know that the Regulations do not give HMRC the power to give penalties of up to £20,000 for each individual underpaid worker, as had been anticipated. We understand however that the Government does plan to amend the primary legislation to introduce a penalty of £20,000 per worker, who has not received the NMW, in the near future.

2. First five employers to be named and shamed

Under the previous scheme operated until October 2013, there were seven criteria for naming and shaming employers who failed to comply with NMW legislation, and an employer had to meet one of these to be named.　These criteria have been removed and, under the revised scheme, the Government is entitled to name all employers that have been issued with a Notice of Underpayment by HMRC unless there are very exceptional cases. On 28 February 2014 five employers who owed their workers wages for failing to pay them the correct NMW were the first to be named and shamed by the Government. Their details, including the Company name, address and the amount of the underpayment due to the employees, were published on the Gov.uk website.

3. New minimum wage rates for October 2014 confirmed

The Government has confirmed, on 12 February 2014, that it has accepted the Low Pay Commission’s (LPC) recommendations for increases in the NMW rates. As a result, from 1 October 2014 we will see the following increases to NMW:

• adult rate from £6.31 to £6.50 per hour
• rate for 18-20 year olds from £5.03 to £5.13 per hour
• rate for 16-17 year olds from £3.72 to £3.79 per hour, and
• rate for apprentices from £2.68 to £2.73 per hour.

Although most employers would agree with the aims that the LPC is seeking to achieve by increasing NMW, a number of employers will have to make cuts elsewhere, as a result of their existing contractual arrangements with commissioners, clients and customers, to reward their workers sufficiently to meet the new NMW amounts.

4. So what is the good news?

The Ministry of Justice has published the quarterly Employment Tribunal statistics for October to December 2013. The figures for Employment Tribunals show the impact of the introduction of Tribunal fees introduced on 29 July 2013. They indicate that the number of claims received was just 9,801, compared to an average of 50,000 new claims per quarter in 2012/13. This is a 79 per cent decrease compared with the period October to December 2012, and 75 per cent fewer than in the previous quarter (i.e. July to September 2013).

Although the good news is not directly relevant to NMW issues, the decrease in the number of Employment Tribunal claims may enable some employers to use the resources that might otherwise be spent on defending such claims, on ensuring that they remain complaint with NMW legislation.

If you have any concerns about NMW compliance in your organisation we can provide you with support to ensure you are correctly applying the law. If you would like to check your current compliance or to purchase an advice note on ensuring NMW compliance relevant to your sector, please contact Anna Dabek on 0121 214 3501 or anna.dabek@anthonycollins.com.

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