HMRC’s approach to underpayment of the National Minimum Wage (NMW) is getting tougher and shows no sign of abating. With the 6.2% increase to NMW announced on 31 December 2019, employers will need to be increasingly careful not to inadvertently fail to pay NLW. Compliance is not as straight forward as you may expect.

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The Low Pay Commission’s (LPC) 2019 report on non-compliance urges the Government “to use all available opportunities to improve the measurement of underpayment, and to investigate new methodologies for assessing the scale of non-compliance”. While most of us would applaud the principle of paying workers a decent wage for work completed, the complexity of the calculations required, especially in the health and social care sector, makes it hard to put the principle into practice. 

Current trends

The LPC’s report shows some clear trends. There is an increasing rate of underpayment; in 2018, an estimated 22.4% of workers entitled to the NMW were paid less than what they were owed. To counter these figures, the Government has increased its compliance enforcement budget, and more than £15.6m in payment arrears were identified last year and £14m in fines were levied. Employers can now be fined up to 200% of the value of the underpayment. The Government has continued its “name and shame” policy of non-compliant employers. The most recent list has approximately 20 health and social care employers on it and monies owed range from £161 to £55,000. 

Hidden Risks?

NMW regulations are a little like the iceberg that sunk the Titanic. Most employers are now aware of the NMW rates and largely committed to rewarding staff appropriately. However, employers are increasingly finding that it is what lies beneath the headline payment figure which sinks them. Seemingly compliant employers need to be wary of payments, taken out of workers’ wages, which may result in wages dipping beneath the statutory rate. Examples of these are administration fees for attachment of earnings orders and DBS checks, lost security fobs and keys, and unpaid hours for mandatory training courses.

Rather appropriate to the analogy, Iceland, the supermarket chain, is facing a £21m back pay claim from the HMRC. Its staff can participate in a voluntary savings scheme run by their employer. Workers elect to have money from their wages paid into a savings account which can be withdrawn at any time, usually at Christmas. However, HMRC has argued that as the money is taken out of the workers’ wages and so often takes them below the pay threshold the supermarket is non-compliant. The Government has responded to the issue of NMW and salary sacrifice schemes with a consultation document which closed on 1st March 2019 and Iceland is appealing the decision. 

HMRC is also in dispute over Iceland’s shoe policy. Workers in the supermarket’s warehouse have safety shoes provided free of charge, but retail staff are asked to wear sensible shoes which they must purchase themselves. HMRC argues that the necessary purchase of “sensible shoes” means that workers pay will dip below the NMW threshold. Similarly, other high street names such as Accessorize and Wagamama are in the spotlight for requiring their workers to adhere to worker funded dress codes. HMRC now argue that a requirement to wear black trousers means employees’ spend on the trousers reduces eligible pay.   

However, Middlesbrough FC has succeeded at the Employment Appeals Tribunal (EAT) in arguing that their scheme, whereby they deducted the cost of a season ticket from wages, did not breach NMW thresholds. The EAT found that the deductions were permitted under the legislation, which was good news for the club, but creates a rather confusing and unpredictable landscape for other employers seeking NMW compliance. 

How can we help?

A spokesperson for the HMRC has acknowledged that “the legislation does not draw a distinction between breaches arising from uncertainty or mistake and deliberate underpayment which means HMRC has no discretion to makes these distinctions either”

The burden on employers in the health and social care sector to correctly apply the legislation in a myriad of different situations with associated complexities is a heavy one. Anthony Collins Solicitors offers a bespoke sector-specific service which includes the following;

  • A review of your current approach and practices, most notably regards to record-keeping, allowances and top-ups, travel time, training, on-call arrangements and sleep-ins and salary sacrifice and deductions ready for possible HMRC inspection;
  • Discussion on recent case law, e.g. Mencap case and sleep-ins, and how that might affect your compliance;
  • Support through an HMRC inspection including appeals against Notices of Underpayment; and
  • Defence of Tribunal Claims.


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For more information

For more information, please contact Matt Wort.