Government brings back minimum wage name-and-shame laws
24 February 2020: the government is set to relaunch its naming and shaming regime of employers who fail to pay their staff the national minimum wage (NMW) or national living wage. Chris Warmoll reviews the changes due to go live in April 2020.
The move follows a pause in the policy that was taken for a review by the Department for Business, Energy and Industrial Strategy in July 2018 to consult further with employers' organisations.
Now that the review has been completed, from April 2020, businesses failing to meet their NMW or national living wage commitments will face the prospect of being publicly outed.
Twinned with this, the new regime will raise the threshold five-fold to £500 and increase the frequency of public naming of companies breaching the rules in a fresh bid to improve compliance and drive down offending.
Those that fail to comply can expect to be named and shamed on a more frequent basis – anticipated to be every few months as opposed to each quarter.
The government says its latest approach to employer compliance - outlined in a press release - is now more “proportionate”, with an increased emphasis on helping educate businesses on their commitments to the workforce.
Former business minister, Kelly Tolhurst, who moved to the Department for Transport in last week’s government reshuffle, said, “Anyone who is entitled to the minimum wage should receive it – no ifs, no buts – and we’re cracking down on companies that underpay their workers.
“We also want to make it as easy as possible for employers, especially small businesses and those trying to do right by their staff, to comply with the NMW rules, which is why we’re reforming regulations.”
Part of the new carrot-and-stick approach will mean that some businesses breaking the rules by less than £100 will have the chance to correct their mistakes without being named, but will still have to pay back workers and face fines of up to 200% of the arrears.
Commenting on the changes, Iain Wright, ICAEW’s Director for Business and Industrial Strategy, said, “This is a good example of a stick being used to try to change unacceptable behaviour, but also a good opportunity for chartered accountants to make a big difference towards helping businesses by ensuring compliance, informing them of the law and specific rates of the NMW.
“While the rules sound simple in theory, in practice there are many ways for businesses to fall foul of them, often unintentionally, sometimes unfortunately for more sinister reasons. Either way, the lowest paid suffer the most, so the government’s move to stamp out unacceptable behaviour is welcome.
“Lack of knowledge isn’t an excuse as far as HMRC is concerned, and chartered accountants as trusted advisers can help businesses avoid ignorance and make sure that employees are paid fairly and in accordance with the law.”
To help effectively police and prosecute this new drive, the government has doubled its enforcement budget to £27.4m for 2019/20, up from £13.2m in 2015/16.
As an indication of the scale of the problem in 2018/19, HMRC discovered over 220,000 workers were £24.4m in arrears, and issued over £17m in penalties to employers.
A core thrust of the reforms is an amendment to Regulation 21(5) of the NMW legislation, which expands the options available to employers in paying "salaried hours workers" – essentially workers receiving an annual salary in equal instalments for a set number of contracted hours.
This means employees whose hours vary, especially prevalent in the care, hospitality and retail sectors, can now be treated as salaried workers.
Subject to Parliamentary approval, the changes are scheduled to go live in April 2020.
The government believes such an approach will offer employers more freedom in how to make their basic hours yearly calculations, leading to improvements in the monitoring of worked hours and a subsequent reduction in underpayment errors.
A further shake-up to the rules means that employers offering salary sacrifice and other deduction schemes will now no longer be subject to financial penalties if their scheme brings payment below the NMW rate – at up to 200% of arrears.
Meanwhile, benefit schemes, where staff buy products from their employer and pay via salary deductions, will now fall under the waiver, subject to strict criteria – including that the employee has opted into the scheme.
Deductions of NMW for uniform and other items connected with the worker’s employment will still be penalised.
The government has also vowed to do more to support businesses in their bid to comply through more online guidance and offering "proactive on-site visits" to "selected" small businesses.
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