National Minimum Wage - what you need to know

From 7 March 2014, the penalty for failing to pay a worker the national minimum wage (NMW) became more serious.

The change was quick in coming, following the Government’s January announcement that employers failing to pay their workers the NMW would face an increased financial penalty of up to 100% of the unpaid wages and a higher maximum penalty of up to £20,000.

HM Revenue & Customs (HMRC) isn’t afraid to use its powers to investigate underpayment claims, then name and shame trangressors. In early June, HMRC named 25 businesses that had been caught out under the legislation. Five were hotels and pubs which had underpaid their workers as much as £7,310.

The facts​

The NMW was introduced in England and Wales in 1999, setting out the minimum level of pay to which a worker is entitled.

There are currently different rates of the NMW depending on the category of worker: the standard adult rate for workers aged 21 or older is £6.31 per hour; the development rate for workers aged between 18 and 20 amounts to £5.03 per hour; the apprentice rate, for apprentices under 19 years of age, or older than 19 but in the first year of apprenticeship, is £2.68 per hour; and the young workers’ rate, for workers aged under 18 but above the compulsory school age who are not apprentices, paid at £3.72 per hour.

These limits are reviewed annually, with rate changes usually coming into force around October.

Mark Stevens, a solicitor at Veale Wasbrough Vizards, notes that under the old regime, the penalty for failing to pay a worker the NMW was calculated as 50% of the total underpayment for all the workers specified by HMRC. Where this amount would be more than £5,000, a maximum penalty of £5,000 was applied.

The penalty was reduced by 50% if the unpaid wages were paid within 14 days — and that is still the case.

But HMRC can also take steps to name and shame employers who fail to pay the NMW. Stevens says: “Where an employer is ordered by HMRC to rectify an underpayment made to a worker, it can refer the employer’s details to the Department for Business, Innovation and Skills (BIS) which will then consider whether it is appropriate to name the employer.That employer has 14 days to make representations to BIS, saying whether the naming by BIS carries a risk of personal harm to an individual or their family; that there are national security risks associated with naming, or there are other factors which suggest that it would not be in the public interest to name the employer or company.”

Of course, if BIS does not receive any representations, or the representations received are unsuccessful, the employer will be named via a BIS press release.

The changes​

In the Queen’s Speech at the start of June, the Government said it intends to legislate at the earliest opportunity so that the maximum £20,000 penalty can apply to each underpaid worker.

Business secretary Vince Cable previously said: “Anyone entitled to the NMW should get it. Paying anything less than this is unacceptable, illegal and will be punished by law. So we are bringing in tougher financial penalties to crack down on those who do not play by the rules. The message is clear — if you break the law, you will face action.”

Stevens thinks that in light of the likely increase to the maximum penalty “now is a good time for all employers to look at the pay rates they use for their workers and rectify and underpayments or anomalies.” To do this, he says, the starting-point is to look at which workers are entitled to the NMW.

Entitlement to the NMW​

The NMW applies to most workers over compulsory school age who are working in the UK. Stevens believes employees working under a contract of employment are going to be entitled to the NMW. But what about less typical working arrangements?

When it comes to agency or temporary staff, Stevens says that the NMW applies, with the employment agency usually taking responsibility for paying the NMW.

In terms of company directors, Stevens says that non-executive directors (those directors who do not work for the company) are not entitled to the NMW, but that any director who does work for the company will be entitled to protection.

Workers who live in their employer’s home, who are treated as a member of the family and are not charged for their accommodation or food will not qualify for the NMW.  Other domestic workers are covered by the NMW.

But the question of volunteers and interns is another matter, reckons Stevens. “Engaging volunteers can be complicated. Employers cannot engage people to work on a voluntary basis if that person would otherwise fall within the definition of a worker. However, genuine volunteers will not be entitled to the NMW.”

However, the question of whether or not interns are entitled to be paid the NMW is one that has garnered a great deal of press attention. “What is clear,” says Stevens, “is that entitlement to the NMW does not simply depend on what job title they are given. An individual may be told that they are an unpaid intern or volunteer — but this would not mean they are not considered a worker, for the purposes of the NMW.”

He illustrates the point with a 2008 case involving an assistant  working in film-production.

“Although the individual was paid only their expenses by the film production company, the tribunal concluded that the assistant was in fact a worker and entitled to the NMW. Similarly, an intern working in a publishing company, who was responsible for a team of writers and hired new interns, was found by a tribunal to be a worker and to be entitled to the NMW.”

Stevens says the message from these cases is that individuals need to be genuine volunteers to escape the NMW. Where there is an obligation upon an individual to perform work for an employer, whether as an intern or otherwise, that individual is likely to be entitled to receive the NMW when performing that work.

The NMW is not going away and will become more challenging for employers. Complying with the law can at least ameliorate potential pain.

The living wage: calculated on basic costs​

It’s not all stick and no carrot: the National Minimum Wage (NMW) is part of a wider debate about giving people a wage they can actually live on, as espoused by the Living Wage Foundation. Like the NMW, a living wage (LW) would be set independently and then updated annually.

However, the living wage differs in that it’s calculated to meet the basic cost of living in the UK.

The LW enjoys cross-party Parliamentary support. Those behind it believe that, although voluntary, it benefits businesses through lower absenteeism, increased work performance and employee retention; makes the individual more open to workplace concessions, while being able to support their family; and for society, improves family lives.

Details are available at www.livingwage.org.uk​​

The circumstances where the NMW will apply are numerous and varied.

Care should be taken when considering the appropriate rate of pay for any individual — and it could now potentially cost the employer a great deal more if the wrong conclusion is reached.