National minimum wage update

National minimum wage update

Published:

Author: Kevin McCavish

There have been a number of important developments recently with regard to the National Minimum Wage ('NMW'). As a result, employers would be well advised to review their pay rates to ensure all applicable workers are receiving at least the NMW.

Increased penalties

An employer who is found to be paying its workers less than the NMW is issued with a Notice of Underpayment by HMRC and made to pay a penalty. For any pay reference period beginning on or after 7 March 2014 the maximum penalty has increased from £5,000 to £20,000 and the penalty percentage has increased from 50% to 100% of the underpayment (being the difference between the remuneration received by the worker and the NMW rate(s) which applied at the time they were underpaid). Where the amount of the penalty is less than £100, a minimum penalty of £100 will apply.

Where an employer's underpayment falls before and after 7 March 2014, it will receive separate Notices of Underpayment for each period calculated using the relevant financial penalties for those respective periods.

Naming and shaming employers

Employers issued with a Notice of Underpayment will also now be automatically referred to the Department for Business, Innovation and Skills ("BIS") for naming in a press release. Previously, employers would only be publicly named if the underpayment was over £2,000 and at least £500 in respect of each worker. Importantly, employers can now be named even for small and inadvertent breaches, provided HMRC has issued the Notice of Underpayment. This will make it much more likely that an employer breaching the minimum wage will be named.

An employer will be able to appeal against the "automatic naming" and can also make written representations to BIS if there are "very exceptional circumstances", such that naming the employer may cause personal harm, national security risks or be against the public interest. However, in reality it is likely to be difficult for an employer to avoid being named.

As a result of these changes, at the end of last month Vince Cable announced the first five employers under the stricter "name and shame" rules. Overall, the five employers owed workers a total of over £6,800 in arrears and were charged financial penalties totalling £3,381.40 (although this was before the increased financial penalties referred to above came into effect).

Rates set to increase

Finally, the government announced last week that it has accepted the recommendations of the Low Pay Commission and will increase the NMW with effect from 1 October 2014, and has agreed to review the NMW law in relation to migrant domestic workers, with a view to reducing non-compliance.

The standard adult rate for workers aged 21 and over will rise by 3% to £6.50 an hour; the youth development rate for workers aged between 18 and 20 will rise by 2% to £5.13 an hour; the young workers rate for workers aged under 18 but above the compulsory school age who are not apprentices will rise by 2% to £3.79 an hour and the rate for apprentices will rise by 2% to £2.73 an hour. The accommodation offset will rise by 3.5% to £5.08 a day.

Interestingly, the Federation of Small Business has suggested that the process for setting the NMW should be substantially revised, indicating that six months is not long enough for businesses to plan for a rise in NMW, and that future changes should be made in April in line with most companies' financial years.

About the author

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Kevin McCavish

Partner

03700 86 8802

Kevin is head of the national employment team and has 20 years of experience in providing legal support to HR teams. He has extensive UK and international experience and gives pragmatic and commercial advice on complex redundancy & reorganisation matters, discrimination & equal pay issues as well as providing TUPE advice. Kevin also handles executive appointment & exits and represents clients in the Employment Tribunal and Employment Appeal Tribunal. He also ensures that the Shoosmiths employment team delivers a top quality service to all its clients.

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