25 April 2019
This article was featured in the May 2019 issue of the magazine.
The CIPP policy team arranged the roundtable, which was held on 12 March at the impressive London office of Portfolio Payroll Ltd, to discuss with a select group a range of issues in light of developments
Russell Clark, promoting compliance, HM Revenue & Customs (HMRC)
Phil Conley, promoting compliance, HMRC
Joseph Cooper, policy adviser and communications lead, Low Pay Commission (LPC)
Samantha Mann MAAT MCIPPdip, senior policy and research officer, CIPP
Jeni Morris, senior manager, NMW Team, Ernst & Young
Mike Nicholas MCIPP, editor, Professional in Payroll, Pensions and Reward magazine
Neil Tonks ChMCIPPdip, legislation manager, MHR
Joseph Wilkinson, head of policy, LPC
Apologies for absence received from several individuals.
On behalf of the CIPP, Samantha Mann thanks the attendees for their attendance and input, and also Portfolio Payroll for kindly hosting the event.
Though the national minimum wage (NMW) legislation has been in force for almost twenty years, it might seem that only recently compliance and enforcement activity by HMRC has served to signal the extent of employers misunderstanding the law. It is clear that employers of all sizes are prone to compliance failures – whether inadvertent or otherwise – as evidenced by the publicity attached to various notorious cases.
Samantha Mann chaired and lead the discussions in the following areas:
The role of education in compliance
The impact of enforcement as a business concern
Development of regulations – can they become a force for good?
Is transparency for all achievable – worker and employer alike?
Naming and shaming – a punishment or a business opportunity?
Comments from attendees
Please note that representatives from HMRC and the LPC participated fully and constructively in the discussions but were always mindful of confidentiality requirements particularly in regard to issues related to various publicised cases of NMW failures.
Neil Tonks – Education has a vital role to play, and ought to come from government as they ‘own’ the rules which employers are expected to follow. The regulations are complex and HMRC actively look for unintentional breaches caused by lack of understanding of the complexities. Additionally, many employers have a simplistic view that compliance only involves ensuring all their pay rates are at or above minimum levels. The problem is delivering education in a way which reaches all employers. Larger companies will have payroll professionals who can be targeted but many smaller employers will not; and reaching the many busy owners of small businesses will always be difficult.
Most employers who are found non-compliant end-up paying a relatively small amount in penalties compared to their total pay bill. The concern is often more to do with the bad publicity which might follow being found non-compliant and consequently being labelled a bad employer by the government. What became clear in the roundtable is that conscientious employers, with professional advisers, nevertheless approach compliance audits expecting non-compliances to be found. Presumably this is because despite their efforts they’re not confident they and their advisers understand the rules well enough – which I think says a lot about the rules!
If some of the regulations could be made less complex or more intuitive, this would be a good thing as it would help prevent employers being caught out. Removing anomalies, such as the rule which says salaried workers can only be paid weekly or monthly, would also be a good thing. Similarly, unfairness could be addressed. An example of this is the ban on salary sacrifice reducing pay below the minimum, which means low-paid workers miss out on National Insurance contributions savings which are available to the better-off, particularly where pension saving is concerned. The publicity which surrounds consultations and changes to regulations can also be a force for good, in that it raises the profile of the minimum wage and this might trigger employers to have a fresh look at their compliance.
There’s certainly reputational damage from being named and shamed, particularly for large businesses that will always tend to appear near the top of the list, which is sorted by the total amount underpaid, simply because larger numbers of employees are likely to be affected. Sorting the list by the average underpayment might give a better measure of the impact of the underpayment on the employees. There’s also a business opportunity for advisers, who may be able to help organisations avoid, or identify and correct, non-compliance. A problem at the moment is that the regulations are complex and it’s very hard for advisers to be certain that organisations following their advice will actually be compliant.
Jeni Morris – Many professional advisers appear not to properly understand the complexity of NMW rules. In seminar rooms up and down the country, I see industry professionals’ apparent confidence melting into uncertainty – and concern – as I outline these complexities. For once, HMRC has been ahead of most professional advisors – quietly expanding its investigating teams, and relentlessly pursuing employers. In some ways, the unsuspecting companies find themselves on an uneven playing field with only a sketchy outline of the (largely unwritten) rules.
In the first few years after NMW legislation was introduced, most investigations were prompted by complaints from individual workers. Recovered arrears and fines were on a relatively small scale. But the government has been pumping funding into NMW enforcement since 2016. HMRC has hired hundreds of new investigators and adopted a proactive strategy of targeting industry sectors and large companies – particularly in low-pay sectors such as retail and hospitality. The complexity of the rules and the opacity of HMRC’s enforcement strategies has left many companies exposed.
Unfortunately, HMRC has revealed very little information about its enforcement and amended strategy, meaning that companies often only become aware of the potential risk when they are already in breach. Astounded employers argue that the breaches of NMW technical rules are entirely accidental rather than intentional. But a clear message has emerged from a slew of reports from government and independent bodies over the past couple of years – ignorance of the law is no excuse, even though the law has turned out to be far more complex than first realised. And HMRC will enforce the law to the fullest extent.
Once alerted, companies are horrified at the potential financial consequences of these contraventions. In some cases, the accrued arrears alone may threaten the future viability of the company, even before HMRC has imposed its fines. Most companies also experience difficulties in getting definitive answers and assistance from HMRC on technical issues when they are attempting to review or rectify their NMW issues. And many professional advisers are unable to provide comprehensive advice or effective defensive strategies when their clients are investigated or ask for information, because they also do not understand the basis on which the HMRC NMW teams operate.
This has placed a spotlight on the complex rules and regulations, leaving many companies stumbling through the maze of guidance looking for advice and clarity in order to ensure or achieve compliance.
There is an urgent need for comprehensive information to be provided to companies about how to take a lead in this – for example, by providing educational seminars and written guidance about how the various rules are applied. If HMRC would be more transparent and explain some of the complexity by using case examples, this would go a long way to educating companies and advisers about the best way forward.
Mike Nicholas – The NMW is a key element of employment law, and one which I have believed since it came into force has been overlooked and neglected by employers and maybe some payroll professionals. Has it been the mistaken practice to look only at the basic hourly rate of workers, I wonder?
There is wide scope for misunderstanding the NMW law. For example, the provisions on ‘deductions’ that are or are not allowable are confusing – and can even catch out large employers that have in-house expertise. A recent case in point is that of supermarket chain Iceland which made voluntary deductions from workers’ earnings for a Christmas Club (http://bit.ly/2DL7Zfh), which meant according to HMRC that the NMW was not paid in some instances.
Another issue is what time worked should be included in the calculations to establish whether the NMW has been paid. Many employees work unpaid hours (e.g. overtime), yet should these form part of the calculations? Probably the new requirement in force since April to show worked hours on payslips will help address this – even if it leads to more cases of underpayments being identified.
The apparent increased focus on compliance and enforcement stems in my view from the implementation of the NLW which by increasing the earnings of millions of workers also reduces the amount of universal credit payable from state revenues to those who are claimants. ‘Making work pay’ has been government strategy.
As with any law that affects workers and employers the rules will inevitably be complex, as this is surely the inherent character of any law that provides rights and imposes costs. We should expect and demand the government to enforce the rules evenly and fairly.
In addition to the government (e.g. HMRC) improving the extent and scope of official guidance, crucially employers and payroll professionals must quickly obtain expertise in the NMW rules and perhaps seek expert advice.