Employers that mistreat staff risk costly penalties under new proposals

10 May 2018 By Hayley Kirton

Holiday pay and Swedish derogation in the firing line – but experts advocate more support and guidance rather than punitive measures

Employers found to be mistreating their employees could find themselves stung by steep financial penalties under plans laid out by the director of labour market enforcement yesterday.

Among the 37 proposals in his first annual report, Sir David Metcalf called for new rules to ensure employees receive holiday pay, better enforcement or closure of the Swedish derogation loophole for agency workers and steps to tackle ‘phoenixing’ – where company directors dissolve their businesses to get out of paying tribunal awards and enforcement penalties. 

Metcalf also suggested that big companies whose suppliers fell foul of employment law could be named and shamed in a bid to encourage them to clean up wrongdoing in their supply chains. 

“It’s important that the government has the necessary powers to crack down on bad bosses who exploit and steal from their workers – that includes bigger penalties to put employers off breaking the law,” he said. 

Also yesterday (9 May), HMRC announced that its investigators had identified £15.6m in underpaid wages owed to more than 200,000 workers in 2017-18, up from £10.9m for more than 98,000 workers the year before.

However, Bill Longe, head of employer solutions at RSM, urged the taxman to focus on preventing mistakes rather than punishment.

“Admittedly, there will always be a few bad apples seeking to flout the law, but in our experience the vast majority of employers are not making deliberate errors and are being caught out by the complexity of the rules,” he said. “Looking to the future, we would urge HMRC to work with employers in introducing clearer rules and guidance so that the amounts underpaid to employees continue to fall.”

In its response to the consultation preceding the director of labour market enforcement’s report, the Federation of Small Businesses (FSB) criticised an overly liberal attitude to naming and shaming and praised the approach of The Pensions Regulator, which “names and shames only the most egregious non-compliant actors”.

“This adds to the effectiveness of the list and does not punish employers that unintentionally erred,” the FSB response continued. 

Among Metcalf’s proposals was clarifying the guidance on the national minimum wage (NMW), particularly with regards to complex areas such as pay averaging and salary sacrifice, to make sure well-intentioned employers do not mistakenly find themselves on the wrong side of the law. 

Metcalf was appointed as the government’s director of labour market enforcement in January 2017. He is charged with overseeing the strategy of HMRC’s NMW enforcement team, the Gangmasters and Labour Abuse Authority and the Employment Agency Standards Inspectorate.

In an introductory report released last July, Metcalf warned that he would not shy away from harsh punishments, including possible prison sentences, for rogue employers.

Yesterday’s announcement comes less than four months after the government published its ‘good work plan’ in response to last July’s Taylor review. The government is currently consulting on various proposals raised in this report, many of which – such as a right to payslips for all workers – cross over with Metcalf’s suggestions. 

Andrew Griffiths, business minister, said yesterday: “We will not accept illegal behaviour from bosses who exploit their workers and cheat the competition, which is why we are already cracking down on irresponsible company directors and boosting protections for workers.”

An official government response to Metcalf’s proposals is expected later this year. 

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