The government will resume ‘naming and shaming’ employers that fail to pay the national minimum wage (NMW), as part of an overhaul aimed at reducing the burden of the legislation on businesses.
The reformed regulations will reinstigate regular naming rounds, designed as a deterrent for underpayers. But they will also offer an increased level of support for employers around compliance, the government said. Business minister Kelly Tolhurst said the changes were to make it “as easy as possible” for employers to comply with the NMW and placed a focus on SMEs that “want to get it right”.
The policy of naming and shaming employers in breach of NMW regulations was quietly suspended towards the end of 2018, following a number of high-profile complaints from businesses that inadvertently fell foul of the complex rules. Many retailers in particular felt unfairly targeted by the enforcement regime, with food store Iceland among those caught out because of a voluntary salary sacrifice scheme that pushed take-home pay below the legal minimum.
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As part of this latest overhaul, employers offering salary sacrifice and deduction schemes will no longer face financial penalties if payments fall below NMW. This will be subject to ‘strict criteria’ such as if the worker has opted into the scheme. Uniform payments or deductions for other items connected with employment will continue to be penalised, however.
The government has also increased the threshold for naming employers to those owing more than £500 in arrears, up from £100. Businesses that underpay by less than £100 will have the chance to correct their mistakes without being named, but will still have to reimburse workers and could face fines of up to 200 per cent of arrears.
However, Ben Willmott, head of public policy at CIPD, said there needed to be greater focus on helping firms, in particular small businesses, comply. Even with the higher threshold, SMEs could be among those named and shamed for inadvertently falling foul of the rules, he warned.
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“Where employers deliberately fail to pay their workers the NMW, then you can certainly make a case for naming and shaming those. But where smaller employers fall through and get caught because of a lack of resource or expertise, it seems a better approach to provide more support to help them comply, rather than name and shame them,” Willmott said.
“A lot of small employers are not falling foul of the regulations deliberately or maliciously; they have no in-house HR knowledge, support and expertise and they fall foul of the rules accidentally.”
Paul Holcroft, associate director at Croner, said while some employers might be nervous about the reintroduction of a system to name and shame, they should remember the provision is nothing new. “Although it was suspended in 2018, it appears this was done to make the system fairer and help employers that make genuine mistakes avoid being overly penalised,” he said.
“Therefore, although scrutiny continues to be placed on the underpayment of the minimum wage, it looks like the government is prepared to take mitigating circumstances into account. That said, employers should take care not to become too complacent.”
But, he added, with more frequent publication of lists expected, employers should still consider the reputational and legal ramifications of being named and shamed, “especially if this happens more than once”.
Alex Watson, director and employment lawyer at Fieldfisher, said the updated rules were a missed opportunity “to encourage greater levels of compliance”, and that HMRC could have chosen to increase flexibility over the penalties levied on employers based on, for example, the underlying reasons for the underpayment or levels of cooperation with HMRC.
Offering immunity where employers voluntarily seek advice or make disclosures of potential underpayments could also encourage employers to be more transparent in their discussions with HMRC, Watson added. “At present, the system remains heavily weighted to penalise employers that fail to comply, with little incentive for employers to raise their heads above the parapet,” he said.
The changes are expected to come into force on 6 April 2020, subject to normal parliamentary approval.