Legal Insight: National Minumum Wage - How to avoid being named and shamedby
The first employer was outed this month under a “naming and shaming” scheme designed to highlight breaches of the National Minimum Wage Act.
Norman Lamb, who until the recent government reshuffle was minister for employment relations, named the afore-mentioned employer as Leicester-based Rita Patel. Following an investigation by HM Revenue & Customs, Patel, who owns a hair and beauty salon that trades as ‘Treena Professional Hair & Beauty’, was ordered to pay a former employee £3,361.22 in NMW arrears. Over the period of her four-and-a-half months of employment, the worker had been paid a mere £342, although she was legally entitled to £3,703.22. Patel was named after HMRC had to enforce the debt through the Court. Since coming into office, however, the coalition government has taken a tougher stance towards employers in relation to the NMW. The Department for Business Innovation & Skills’ scheme to identify employers who flout the legislation came into effect on 1 January 2011, after the government recognised that bad publicity could be effective in deterring those tempted to ignore the law. Different categories of worker All employers are obliged to pay the NMW, regardless of their size and the National Minimum Wage Act 1998 applies to the majority of people who work in the UK and are over compulsory school age. The standard adult rate applies to workers aged 21 or over and is currently £6.08 per hour. For those aged between 18 and 20, there is a development rate which is currently £4.98 per hour. Overseas workers are also entitled to the NMW as long as they work in the UK and however short their period of employment may be. Furthermore, anyone who is usually based in the UK but is temporarily working abroad is still entitled to it as well. If an employer provides an employee with free accommodation, some of the value may be offset against the NMW, however. There are also specific categories of workers who are affected differently by it. For example, non-executive directors are not entitled to the NMW as they are not considered workers or employees of that particular organisation. Other ineligible people include young workers of compulsory school age, students undertaking a placement that lasts for less than one year and those based in their employer’s homes who are considered part of the family. Apprentices, trainees and casual workers However, apprentices are entitled to the NMW at a specific apprentice rate of £2.60 per hour, although they need to be working under a contract of apprenticeship, be under 19 or in the first year of their apprenticeship. It should be noted that particular government or European Union-funded schemes are excluded from this situation though. As for trainees, unless they are either working as apprentices or on a government-funded scheme, they must also be paid the NMW. Moreover, although there has been some debate as to whether interns are covered by the legislation, the position is actually quite clear: if the intern is a “worker” ie they are personally contracted to do work for an employer, they must be renumerated in line with the law. Because genuine work experience placements do not involve an obligation to do any work, however, no payment is required. But it is required in the case of casual workers. As a result, employers must be careful to keep records of the hours worked by each individual, whether casual, temporary or permanent, in order to ensure that they have been paid at least the NMW. The legislation itself, meanwhile, is enforced by HM Revenue & Customs, which will investigate complaints made by workers, third parties or as a result of targeted enforcement in a particular low-paying sector. Naming and shaming Officers can require employers to provide records, information and access to their premises in order to help them determine whether the law has been complied with or any employees have been underpaid. If it happens that employers have underpaid one or more workers, they will be issued with a notice of underpayment. This notice sets out how much they are required to pay the employee as well as a financial penalty set at 50% of the total underpayment. The minimum penalty is £100 and the maximum, £5,000, but it will be reduced by 50% if the employer complies within 14 days. If they fail to respond to a notice of underpayment, however, HMRC may issue civil proceedings or undertake a criminal prosecution. Under the new naming and shaming scheme, meanwhile, HMRC can also pass on an employer’s name to BIS if their total arrears is more than £2,000, the average arrears per employee is at least £500 and they meet one of the following criteria, which show evidence that the employer:
- Knowingly or deliberately failed to comply with their NMW obligations
- Previously received advice from HMRC about the steps that they needed to take to ensure future compliance but failed to take them
- Failed to take adequate steps to keep or preserve NMW records
- Delayed or obstructed a NMW compliance officer in performing their duties
- Refused or neglected to answer questions put to them by a NMW compliance officer
- Refused or neglected to provide information or produce documents to a NMW compliance officer
- Refused or neglected to pay NMW arrears to workers following intervention by HMRC, which resulted in the government department taking action against the employer in order to ensure that payment took place.
But it goes without saying that the naming of Rita Patel has raised the stakes in enforcement terms - certainly, no employer will want to be next. This means that it is important not only to ensure that workers are paid the correct rate, but that suitable records are kept and any HMRC investigation is always cooperated with fully.
Adrian Hoggarth is head of employment and Louise Taft is senior solicitor in Prolegal's employment team.