We have seen over recent years a significant number of headlines regarding employers who have failed in their duty to pay their workers the National Minimum Wage.
Whilst a number of these centre around employers who have deliberately tried to avoid paying the prescribed rate to their workers, many relate to more technical misunderstandings.
In light of the recent coverage of Iceland (the supermarket chain)and their position, the government has agreed (following the intervention of the Public Accounts Committee) to re-visit the rules to see if these need to be re-drafted to remove some of the complexity, and to avoid some of the potential technical pitfalls. It will be interesting to see if what is proposed does make life simpler for engagers.
At present there are two significant areas which create the complexity:
The engagement of workers
We have seen a significant number of cases being taken against those who engage self-employed workers who, given the terms of their contract, have been considered ‘workers’—and on that basis entitled to the National Minimum Wage. These cases include Pimlico Plumbers, Addison Lee, and Uber. Usually, when this matter is disputed, the Courts have found a worker arrangement to apply.
The Matthew Taylor review on the gig economy recommends tightening up of the rules in this area and the possible introduction of increased regulation, including more rights for those workers who are considered to be ‘dependent contractors’
If you are regularly engaging self-employed workers in personal contracts, you need to take a step back and ask whether that person undertaking the work could be considered a ‘worker’.
Deductions from pay
We have seen several cases relating to workers who have had deductions from their pay—which took them below the National Minimum Wage.
It is important to think of any deductions that are being made to workers, and whether they impact on the National Minimum Wage. We have seen deductions for materials or tools needed for the work, clothing, and car leasing.
From experience, it is an area that will be carefully considered at the time of a National Minimum Wage review by HMRC. Getting this wrong could prove costly, like that reported in the recent press articles relating to Iceland.
In my experience, it is still the case that there is a great deal of misunderstanding of the National Minimum Wage rules; it is easy to make errors that could lead to a significant cost.
For many, whilst the penalties for breaching the National Minimum Wage are significant, it is the fear of being named and shamed that causes the real concern.
Whilst there is also the threat of being prosecuted or barred from public office, these threats only impact on those who have deliberately attempted to avoid the rules.
It is my view that, given the significant level of HMRC activity in undertaking compliance reviews, coupled with the efforts of trade unions and individual workers to report potential breaches, it is definitely something that finance directors should be reviewing.