National Living Wage & National Minimum Wage
The Department for Business and Trade recently published a report which sets out the enforcement action which has been taken during the 2021-2022 financial year against employers who have been found to be in breach of paying the national minimum or living wage.
The report sets out the following statistics:
- £16.3 million in arrears was identified for over 120,000 workers.
- HMRC issued 700 penalties, with a total value of £13.2 million.
- 399 employers were named and shamed by HMRC for owing a total of 3.3 million to 46,000 workers.
Enforcement of the national minimum wage
HMRC is responsible for enforcing the minimum wage and it does so by using “Promote, Prevent and Respond”.
HMRC recognises that in some instances, an employer’s failure to comply with the national minimum/living wage requirements relates to a lack of understanding, as opposed to a deliberate breach. As such, HMRC aims to improve the information available to employers to ensure they fully understand their obligations.
The basis of this measure is to provide employers with the benefit of the doubt i.e. they will comply once they fully understand their obligations. If an employer does not respond to the compliance measures by HMRC then they will be subject to enforcement action.
This step recognises that some employers will deliberately underpay their employees by balancing the risk of getting caught against the potential financial benefit of not complying with the requirements. The strategy here is to make employers fully aware of the consequences of non-compliance.
This step is triggered by HMRC identifying an employer’s non-compliance, either as a result of a complaint by a worker or by their own investigation.
If an employer is found to be underpaying their workers, HMRC will issue a notice of underpayment. This means the employer will need to ensure that all arrears are paid to the affected workers within 28 days. A penalty of 200% of the total value of the underpayment is also imposed against the employer. This can be reduced to 100% if the employer pays the arrears to the workers within 14 days of receiving the notice.
In addition, HMRC will also pass the employer’s details to the Department for Business and Trade who may name and shame the employer on the government website.
This demonstrates that failing to comply would not only have a serious financial impact but also a reputational one.
What should you do?
The report highlights the importance of staying up to date with the national minimum and living wage requirements.
Employers should regularly review their employees pay to ensure the requirements are being met, even where the employee is salaried as it is possible that an annual salary falls below the requirement without the employer being aware of the error.