Minimum wage update

01 April 2020

Tim Bridgett, employment taxes senior manager at PSTAX, considers recent updates regarding NMW enforcement and entitlement.

Following various consultations which all concluded during 2019, HM Revenue & Customs (HMRC) and the Department for Business, Energy and Industrial Strategy (BEIS) have recently published their new national minimum wage (NMW) enforcement policy, dated February 2020. This policy makes for very interesting reading and we have pulled together a summary of the relevant points.

The new policy provides a summary of the NMW penalty regime. The penalties typically charged in a NMW review will be 200% of the underpaid salary and the penalty will range from a minimum £100 to a maximum charge of £20,000 per worker. The penalty is reduced to 50% if all the unpaid wages and 50% of the penalty are paid within fourteen days of a notice of underpayment issued by HMRC.

The policy confirms that penalties will not be charged where all of the following apply:

  • all of the underpayment relates to: a reduction of pay due to a salary sacrifice scheme; a deduction made from the worker’s pay as a purchase of goods/services; a deduction in respect of a savings scheme (remember the ‘Iceland’ case)
  • no part of the underpayment is in respect of deductions made in respect of living accommodation or expenditure in connection with the employment
  • the worker has consented to the reduction/deduction
  • the worker has received the relevant goods/services, the benefits of the salary sacrifice or the repayment of the savings scheme
  • the employer has not been convicted of a previous NMW offence.

As an example, there will be no penalties where a NMW underpayment arises due to a mistake in the implementation of a typical salary sacrifice scheme – but remember that any underpayments of NMW must still be corrected.

MW prosecution
HMRC has the power to instigate criminal proceedings when appropriate to bolster their overall enforcement strategy. The Crown Prosecution Service will consider the following factors when deciding to prosecute cases:

  • there has been a long period of failure; HMRC’s guidance refers to a ‘cynical exploitation of workers’
  • the offences affect workers belonging to vulnerable groups, e.g. physically/mentally disabled
  • there are breaches under the Modern Slavery Act, etc.

Additional factors that would indicate that prosecution is the appropriate course of action:

  • there have been more than five workers who have been underpaid
  • there has been a previous failure to pay the NMW
  • the employer has failed to preserve wage records (minimum of three years from the start of the pay reference period)
  • the employer produces false information
  • the employer delays or obstructs a compliance officer.

Naming and shaming scheme returns
As was widely publicised last year, the naming and shaming scheme was suspended while the government reviewed the scheme. HMRC has now advised that this will now recommence with effect from April 2020, with the following changes:

  • the arrears threshold increases from over £100 to over £500 of total arrears
  • more details provided about the reported breaches
  • an educational bulletin will be published quarterly to highlight common breaches
  • naming and shaming will be done on a more frequent basis.

We feel that these improvements should benefit both employers and HMRC, if the naming and shaming scheme is used to target those breaches that are considered deliberate, rather than accidental.

Salaried hours workers
Subject to Parliamentary approval, a further change was announced in February 2020 which widens the range of pay arrangements available to businesses employing salaried hours workers. This extends the range of payment cycles from monthly to fortnightly and four-weekly and allows employers to choose the ‘calculation year’ for their workers. (The calculation year is the reference point to identify the day in any calculation year upon which basic hours are exceeded.) This will mean that businesses will be less likely to be caught out by the NMW legislation due to differences in employee’s hours from one month to the next. n

The Mencap case
Although the Supreme Court hearing regarding payments for ‘sleep-in’ shifts has taken place, the ruling is unlikely to be available for several months. However, the three sessions of the hearing are available online and they make interesting viewing.

Early comments would seem to support the original decision, as contained in HMRC’s updated guidance from April 2019.

One of the hearing’s three judges, Lord Justice Underhill, said: “sleepers-in…are to be characterised for the purposes of the regulations as available for work…rather than actually working…”.
In 2018/19, HMRC identified £24,400,000 in arrears, for over 220,000 workers and raised over £17,000,000 in penalties for non-compliance. Clearly, the NMW is a very complex area and professional advice should be sought where there is any doubt.

This article was featured in the April issue of Professional in Payroll, Pensions and Reward magazine and was correct at the time of publication.