Below, we summarise the key National Minimum Wage (NMW) issues employers should be aware of in 2019.
- New National Minimum Wage rates from 1 April 2019
- Iceland supermarket to challenge HMRC over possible £21 million National Minimum Wage liability from Christmas saving scheme
- Government launches consultation on salary sacrifice and ‘salaried worker’ definition
- Naming and shaming scheme to be reviewed
- Beware of HMRC’s ‘nudge’
- No premium National Minimum Wage rate for non-guaranteed hours
- No increase in 200 per cent financial penalty for National Minimum Wage non-compliance
In the Autumn budget the Government confirmed the National Living Wage (NLW) and NMW rates would increase. From 01 April 2019, the new rates will be:
|Apprentice||£3.90 per hour|
|Under 18||£4.35 per hour|
|18 - 20||£6.15 per hour|
|21 - 24||£7.70 per hour|
|25 and over||£8.21 per hour|
Iceland supermarket to challenge HMRC over possible £21 million National Minimum Wage liability from Christmas saving scheme
It has recently been reported that the supermarket chain, Iceland, is disputing an HMRC finding that it has underpaid workers by £21 million over the last six years from the operation of an employee Christmas saving scheme, where staff voluntarily had Iceland deduct money from their pay to save for Christmas.
It is also understood HMRC has told Iceland it should compensate staff for the cost of footwear as they were told to wear ‘sensible shoes‘.
We discuss the issues in more detail here but employers operating any staff savings schemes, making deductions from workers’ pay or requiring staff to wear certain uniform should review their procedures now to ensure NMW compliance.
The NMW legislation is complex and this can result in employers unknowingly failing to comply for technical reasons. Two thorny issues which regularly crop up are:
- conditions which must be satisfied for individuals to be categorised as ‘salaried workers’; and
- the use of salary sacrifice schemes.
To comply with NMW, an employer first has to identify which type of work its workers are carrying out. Normally, this will be one of salaried work, time work or unmeasured work. Many employers pay their workers a salary and therefore assume those workers are carrying out salaried work. Paying a salary brings benefits to both parties - it makes the payroll easier for an employer to administer and guarantees the worker a set monthly income which helps with household budgeting loan or mortgage applications.
However, under NMW legislation, certain conditions must be satisfied for a worker to be classed as carrying out salaried work. In many cases, those conditions are not met and the worker is instead actually carrying out time work or unmeasured work. This means their pay cannot be averaged over the course of the year and so leads to technical breaches of NMW by the employer.
Salary sacrifice schemes create NMW compliance issues because it is the post-sacrifice salary which is used to establish whether NMW is being paid. This has resulted in some employers who pay at NMW rates and operate salary sacrifice schemes for pensions, childcare vouchers and cycle to work schemes failing to comply. The consequence of this is that some staff paid at or near NMW rates will lose out on these benefits because employers will have to withdraw them to ensure compliance.
The Government’s decision to launch a consultation on these issues is an encouraging step as it demonstrates the Government is listening to feedback on the complexity of the NMW rules and HMRC’s enforcement regime. It is hoped the consultation will lead to changes being made to ensure employers understand their obligations and are not unfairly penalised when trying to do the right thing for their workers.
The Government has also confirmed it will be reviewing the operational effectiveness of the naming and shaming scheme however, no changes are proposed yet. Our concern with the existing naming and shaming scheme is that the complexity of the NMW rules leads to some employers underpaying NMW because of technical breaches. The total underpayment for the entire workforce going back six years (five in Scotland) only needs to be £101 for the employer to be named and shamed. This low threshold leads to employers who are trying to do the right thing still being named.
There is also a concern that the ease with which employers can be named may devalue the shaming impact. We agree and believe the scheme rules need a rethink.
In 2018, HMRC sent out approximately 1.6 million texts to workers paid NMW advising them to check their employer is paying them NMW and giving them details of who to complain to if not.
HMRC has said it follows up all complaints it receives, usually leading to a NMW inspection. If HMRC find any areas of non-compliance, the employer will almost certainly face a financial penalty and is likely to be named and shamed.
To encourage compliance, even where no complaints have been received, HMRC uses targeted enforcement of at-risk sectors. This may take the form of an inspection or a ‘nudge letter’. These nudge letters warn the employer that their sector is at risk of NMW non-compliance and reminds them to check their procedures to ensure they are complying.
Employers who receive the nudge letter rather than the inspection should think themselves lucky as, unlike an inspection, it won’t lead to financial penalties and naming and shaming. However, employers who receive a nudge letter would be wise to check everything is in order as soon as possible as it could shortly be followed up by a full-blown HMRC inspection.
In the Government’s response to Matthew Taylor’s review of modern working practices, it asked the Low Pay Commission (LPC) to consider Mr Taylor’s recommendation to introduce a premium rate of NMW for the non-guaranteed hours a worker is required to work. The intended aim was to encourage employers, particularly those operating in the ‘gig economy’, to provide casual staff with more certainty over hours and pay.
The Government has decided not to introduce a NMW premium following the LPC’s findings that there may be unintended consequences of such a move which would actually disadvantage workers rather than benefit them. The Government will instead be introducing other measures to achieve these aims, including the right for some casual workers to request guaranteed hour contracts.
Employers who regularly use casual workers will breathe a sigh of relief as the premium rate would have led to an increase in wage costs or the challenge of restricting the workforce to minimise the use of casual staff.
The Director of Labour Market Enforcement (DLME) is responsible for co-ordinating the agencies who enforce the rights of vulnerable workers and is required to prepare an annual strategy setting out recommendations for Government to consider. In his 2018/19 strategy, the DLME suggested that the financial penalties for non-compliance were not tough enough to act as a deterrent and that they should be increased.
Employers will be pleased to know that the Government has however decided not to increase this penalty. When looking at the statistics, it is not difficult to see why. Of the HMRC identified NMW non-compliant employers in 2017/18, over 80 per cent had a total underpayment of less than £5,000 across their entire workforce going back six years. This suggests that underpayments were probably minor and may have resulted from confusion over how the NMW rules apply rather than a willingness to ignore NMW compliance altogether.