February 18, 2020

February 17, 2020

Subscribe to Latest Legal News and Analysis

NMW Enforcement Finally Heeds User Concerns – Whatever Next? (Uk)

Following the Government’s review into the enforcement of the National Minimum Wage Regulations 2015, it has announced a number of changes which are to be introduced in April of this year. Whilst the headlines focus on the reintroduction of naming and shaming of those who pay below the NMW, other aspects of the changes are in our view of far more significance to employers. Indeed, it would appear this is one of those rare occasions where government has listened to the concerns of employers and, with uncustomary swiftness, sought to implement positive, proactive change.

There are a number of aspects to current NMW enforcement which simply defy common sense. At the top of the hit list has been how it has applied to salary sacrifice arrangements (pensions, childcare vouchers, etc.) and treating them as deductions from pay which could take a worker below NMW. This has meant that the lowest-paid in society could not benefit from such schemes and employers have had to remove such workers from them, or bar their entry in the first place, for fear of breaching the NMW Regulations. An utter nonsense on any view and surely not what was intended when the NMW was first introduced. Thankfully, it would appear the government is now also on board with this view and the official enforcement policy has been updated so that voluntary salary sacrifice arrangements which would take workers below NMW will not result in a financial penalty being issued. This is providing certain conditions have been met and (of course) that the underpayment is only caused by the salary sacrifice arrangement.

Another area of unnecessary complication which has led to inadvertent breaches of the NMW Regulations is the issue of who can be considered a “salaried worker” and how the rules applied to such workers if you did manage to shoehorn them into the definition. The way the NMW Regulations were interpreted and applied meant that this effectively only captured those on annualised hours contracts and not, contrary to what any rational person would expect, someone paid an annual salary. It also couldn’t apply to those who were paid anything other than weekly or monthly, or to those who received certain additional payments on top of their basic salary. This has meant that most of those paid annual salaries fall outside the “salaried worker” definition and so might be inadvertently paid below the NMW in months where there are more working days than others. Changes in this area include:

  • permitting additional payment cycles for salaried workers, including fortnightly and 4-weekly cycles, providing choice and flexibility to employers and workers;

  • allowing employers to choose the ‘calculation year’ fit for their workers, helping them to better monitor the hours worked by salaried workers and identify potential underpayment of wages; and

  • ensuring salaried workers can receive premium pay, for example for working on Bank Holidays, without losing their entitlement to equal and regular instalments in pay

In addition to these changes, the naming scheme (which has been on hold since Summer 2018) will now resume and this will take place more regularly. The government has also increased the threshold for naming employers, so that it will only apply to those who owe arrears of more than £500 (the threshold was previously £100).

In addition to these changes, the government has also committed to doing more to support employers in ensuring they comply with the NMW Regulations. This includes:

  • improving NMW guidance available through the GOV.UK website, making it more accessible and easier to navigate;

  • proactively supporting new, small businesses. HMRC, it says, will visit selected new, small businesses not as avenging enforcers, but instead to educate them on the NMW and support those businesses in getting their practices right from the start; and

  • providing more support via a helpline for employers who operate deduction or salary sacrifice schemes. Employers will be able to access support and information directly from HMRC. [NB. Small tip. If you do rely on the helpline, make sure you keep a very careful note of what you told it and what it told you. HMRC has made it clear in other areas of enforcement (IR35 in particular) that it will only regard itself as bound by its own advice if there is no room at all for it to argue that the information it was given was incomplete or inaccurate. Additionally, remember that HMRC “support” is not law and that there have been occasions where it has argued in the Tax Tribunals that its own guidance is wrong. If your salary sacrifice arrangement has the potential to pull people below the NMW we would still recommend taking specialist advice].

Also worthy of note within the government’s announcement is the reference to a proposed major overhaul of labour market enforcement. They state that this will include the creation of a Single Enforcement Body to crack down on employment law breaches, with this set to be announced as part of a forthcoming Employment Bill. We shall await further news on this with interest. How far it will change the actual law or the practical steps required for compliance is far from clear, so it could be possible for the sceptic to see this as motivated more by political expediency than any real interest in improving workers’ rights.

© Copyright 2020 Squire Patton Boggs (US) LLP

TRENDING LEGAL ANALYSIS


About this Author

Senior Associate

James is a Senior Associate in our Labour & Employment Practice based in our Manchester office.

James advises clients on all areas of contentious and non-contentious employment law. He has considerable experience in handling complex employment tribunal claims, including multi claimant actions, discrimination, whistleblowing and TUPE.

44 161 830 5084