In April 2018 the top rate of the national minimum wage increased by 4.4% to £7.83 per hour for workers aged 25 and over. The Low Pay Commission has indicated that this rate is likely to reach around £8.20 in 2019 and around £8.60 in 2020. Hourly rates for younger workers and apprentices have also risen significantly.
Higher minimum wage rates are accompanied by stepped up enforcement by HMRC. As a result, increasing numbers of employers are being told that they have failed to pay the minimum wage and face demands for up to six years’ arrears plus hefty fines and the ignominy of being publicly named as a defaulter.
Even those whose basic rates are comfortably above minimum wage rates can be caught out. Part of the problem is that some aspects of the rules are ambiguous while others are not well known. Tricky areas include: allowances and shift premiums; salary sacrifice; dress-codes; workers’ expenditure; pay deductions; pay-averaging; time-off in lieu and other flexible work arrangements; and on-call time.
Earlier this year the government published its latest list of minimum wage defaulters. News reports focussed on two large employers who both appear to have been caught out by difficult to apply rules affecting dress codes and uniform policies. In essence, the regulations say that if a worker is obliged by their employer to incur expenditure to do their job, they cannot be expected to cover those costs out of minimum wage pay; instead, the employer has to reimburse the expenses on top of paying the minimum wage. This may sound like a straightforward principle but it is one that catches many employers out because it is not always easy to apply in practice. If, for example, an employer’s dress code requires staff to wear black shoes, HMRC’s minimum wage enforcement officers usually take the view that the cost of buying black shoes is something the employer should be paying for on top of the minimum wage, notwithstanding any protestations that workers are already likely to own a pair of black shoes. There is then the practical difficulty for employers of knowing exactly which of their employees have had to buy shoes to do their job, when, how much they spent and, if the cost seems excessively high, whether there are any limits on how much the employer is expected to pay. HMRC’s answer to these issues may be to take a broad-brush approach, identifying an amount that it thinks represents what the average worker is likely to have spent. Employers can feel under pressure to accept an enforcement notice on that basis – and their inevitable inclusion in the government’s defaulter list – rather than challenge HMRC’s stance in Employment Tribunal proceedings.
The Director of Labour Market Enforcement has called for better government support and guidance for employers to reduce ‘accidental’ non-compliance. In the meantime, employers need to be alert to the fact that their established payroll practices could make them vulnerable to inadvertent breaches of the rules. Eversheds Sutherland are running a training course on this subject, visit NMW training for more details.