Is it fair to name and shame NMW offenders?

Emma O’Leary weighs up the pros and cons of the government scheme to name employers that breached national minimum wage requirementsEnter standfirst here

Since the Department for Business, Energy and Industrial Strategy’s scheme to name employers that break national minimum wage (NMW) law was revised in October 2013, more than 1,000 companies have been named and shamed. The list includes some of the UK’s biggest and best-known companies, as well as some of the smallest. The majority come from the hospitality, retail, hairdressing and social care industries, and even football clubs are not immune. The government has been very clear that no one will escape – but is it fair?

The purpose of the name and shame list is to expose companies that are deliberating failing to pay the requisite hourly rate and are consciously trying to get away with paying less. However, it seems the blanket approach taken by HMRC is seriously damaging some small businesses that believe they are paying the correct wages but, owing to various circumstances, on paper are found to be paying less. 

When you read the plight of the baker who takes a weekly pound from employees for tea and coffee with their agreement (see below), it seems absurd that common sense has not prevailed and this unfortunate baker has fallen foul of significant fines and been shamed as a so-called ‘perpetrator of low wages’.

There are a large number of employers listed that failed to pay NMW to only one worker, so it seems quite harsh to name and shame an employer as a result of something that could have been a simple administrative error. 

That was highlighted in a report regarding bakers who had innocent and plausible explanations for having paid below the NMW. Brian O’Loughlin, managing director at Thomas’s Bakery in Dalton-in-Furness, said his business was accused of underpaying £779.75 to nine workers because employees put £1 in for tea, coffee and biscuits each week. Meanwhile, Tony Bain, general manager at Glover’s Bakery in Preston, said the £11,320.33 that they were listed as having underpaid to two workers was a result of the employees living in a subsidised flat above the bakery, and had been deducted at the employees’ request.

If an employer offers an employee subsidised housing as part of the job, they need to check the accommodation offset rates set by the government, which would avoid a finding that they have paid less than the NMW or living wage.

Little room for manoeuvre

The law is very black and white in this area, which means that any deductions from employees’ wages must be taken into account when calculating the NMW or living wage. Having robust safeguards and a vigilant payroll system should avoid this. Employers can appeal to HMRC within 28 days of receiving a penalty notice. If there is no appeal or the appeal is not successful, HMRC will consider the company for naming – unless the employer claims an exceptional criteria, such as a risk to national security.

The problem companies on this list have now is not only do they have to repay the arrears of wages owed and face potential reputational damage, they could also face financial penalties of up to £20,000 per worker – which could be crippling for a smaller business.

Even if Thomas’s Bakery had appealed the decision, it appears that there would have been little chance of avoiding the list and, on the face of things, it seems unfair that this small business is made out to be trying to get away with paying less than the legal minimum. The name and shame list doesn’t include an explanation for why each particular company has fallen foul, nor is there a forum for the employer to provide their own justification. This leads us to ask: is the blanket approach working, or is it simply ruining the reputation of innocent employers that should have ensured they had the right legal and payroll advice?  

It’s important to note that some companies are not so innocent. The government says it is investigating a further 1,500 cases, which suggests that some businesses still fail to understand the significance of ensuring their liability to pay a minimum wage is met.

With the reputational damage and financial penalties that come with being named and shamed, it seems that investing a small amount to ensure that a company is fully compliant will pay dividends in the long run.

Emma O’Leary is a partner at Essential Solicitors and an employment law consultant at ELAS