New powers to police National Minimum Wage need urgent review

02 September 2015

Andrew Hubbard

The Business Secretary has just announced a package of measures to strengthen compliance with the national minimum wage (NMW). In principle these are to be welcomed: employers who exploit poorly paid workers by deliberately paying them less than the legal minimum will get no sympathy from me. But I am concerned that the regime may not be hitting the right targets.

Take the statistics in the press release. These give what appears to be an impressive figure of £3.29m arrears resulting from HMRC NMW investigations in 2014-15. But then you read that this covers 26,318 workers. This averages out at about £125 per worker. If you assume that there will be some cases in the total where the amount per worker was more than that then there must also be cases where the amounts involved were minimal. Are those really cases of exploitation, or are they, as I suspect, minor technical breaches of what can be a very complex code?

I’d never really looked in detail at the NMW guidance: I reviewed it properly recently and was very surprised at how complex it is. For a start there are 61 pages of it. A flavour of what is involved is found in the following example. This is far from being the most complex: space doesn’t allow me to quote anything more complicated.

Example calculation - allocating an annual bonus to a pay reference period

You pay a worker £990 for 152 hours work per month. You pay them a bonus in December of £500 for work performance in the 12 months ending on 31 December.

You should calculate their minimum wage pay for January to October as none of the £500 bonus can count towards minimum wage pay for these months: £960 ÷ 152 hours = £6.51 per hour.

For the November pay reference period you can use a twelfth of the bonus towards minimum wage pay. The proportion is that which relates to that pay reference period: £500 ÷ 12 months = £41.67. The worker's total minimum wage payment for November is: £990 + £41.67 = £1,031.67. The hourly payment for November is: £1,031.67 ÷ 152 hours = £6.79.

For the December pay reference period you can include the remaining total of the bonus: £500 - £41.67 = £458.33. The total minimum wage pay is £990 + £458.33 = £1,448.33. The hourly pay for December is: £1,448.33 ÷ 152 hours = £9.5.

It is hardly surprising that people make errors when the rules are so complex – how on earth can somebody running a small business possibly be expected to cope with all of these nuances?

This leads on into naming and shaming. There is a power to name and shame NMW 'offenders'. The latest press release says "the [HMRC] team will have the power to use all available sanctions, including penalties, prosecutions and naming and shaming the most exploitative employers" (I’ve added the emphasis). If this power was really reserved for exploitative employers I would not be concerned. But take this recently reported example:

A nursery was fined by HMRC in 2013 after taking on an apprentice who, after being granted funding from the local authority to train for her NVQ seven months after her start date, changed her mind about completing her childcare qualifications. The nursery owner said that they kept the employee on and continued to pay her an apprentice's wage, unaware that they were breaching the law. HMRC apparently reimbursed the fine because the nursery was very cooperative. But this did not stop the nursery being named and shamed on a list of NMW defaulters.

The original government press release announcing the policy was headed National minimum wage rogues to be publicly named and shamed under new plans.

How on earth can it be right that a business which makes a mistake on a complex technical point, puts matters right, cooperates with HMRC, and changes its processes to make sure that the same error does not occur again can find itself publicly condemned by a government agency as a minimum wage rogue?

This whole policy needs an urgent review.

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