Minimum Wage – Why are Employers Getting it Wrong?

In August 2016 the Department for Business, Energy & Industrial Strategy (BIS) publicly named and shamed 197 UK employers who failed to pay their workers’ National Minimum Wage. The announcement, which resulted in payment of over £450,000 in arrears to underpaid workers, was the largest announcement to date from the Government department.

The list, which includes hairdressers, retailers, football clubs and even a law firm, is the latest in a long line of employers named by BIS. But why, on an issue which on the face of it seems so simple, are so many businesses getting it wrong? In this article we look at common reasons for breaching National Minimum Wage and how your business can avoid the same.

Background

National Minimum wage is simple, isn’t it? You ascertain the age of the worker and pay them what the Government tells you they should be paid as a minimum. Unfortunately, not quite.  As many hundreds of employers have found out what happens on the shop floor is sometimes not as straightforward as those in the offices of BIS would have you believe.

Unless you have been hiding under an unnecessarily oversized mug for the past 6 months, you will not have missed the furore surrounding Mike Ashley’s retail empire, Sports Direct, who has recently agreed to pay over £1m to workers deprived of National Minimum Wage. So how did such a large company get it so wrong? Like so many companies on the list, the problem was not with the contractual hourly rate of pay in the workers contracts, but was instead down to internal procedures.

In December 2015 an undercover investigation by The Guardian found that workers at a Sports Direct warehouse were being docked wages for clocking in as little as a minute late. In addition, compulsory security searches were carried out on workers after each shift, adding typically 1 hour 15 minutes to a workers week. Whilst not confirmed by Sports Direct, it appears to be accepted that, in line with legislation, workers should have been paid for the entire time spent working and being searched, hence the large repayment.

It is policies such as those implemented by Sports Direct that are routinely catching employers out. Below we list some of the most common examples we have come across:

• Tidying or setting up shop – many employers utilise shop floor staff to tidy or set up the store at the beginning and end of each working day. From experience, such practices are usually mandatory with the worker facing disciplinary action if they do not comply. 
• Staff searches (see Sports Direct scenario above) - should compulsory staff searches be implemented by a business, which results in the worker staying later than their paid shift requires, then the worker should be paid for the time waiting and being searched.
• Birthdays – one of the biggest headaches for employers is keeping track of workers' birthdays and when a wage increase should kick in in line with National Minimum Wage legislation. Generally, a good payroll department will have an automated system in place to catch such increases. However for some start-ups and small businesses the expense of a payroll department or system is not always an option. With the introduction of the National Living Wage, an extra age bracket has been added to minimum wage provisions, giving a further minimum wage increase when a worker reaches 25 years of age. This is not always caught by outdated payroll systems.

The above scenarios are all real life examples of where employers’ failure to properly understand the law has led to them being named and shamed, fined, or in many instances, both.

Enforcement   
 
HMRC has the power to inspect any business following a complaint of breach of National Minimum Wage by a worker or a third party. HMRC’s officers are also entitled to carry out inspections of a business at any time, without providing a reason for doing so. HMRC is also entitled to request that employers produce records of payments to employees and may remove records to make copies of the same. 

Should an employer be found to be underpaying a worker, HMRC will issue a notice of underpayment.  In addition, as well as the public naming and shaming of the business and ordering that the worker be paid the deficit, HMRC can also fine the business 200% of the total underpayment up to £20,000 per worker. Failure to comply with a notice of underpayment may also see criminal charges brought against an officer of the company.

What should you be doing now?

All businesses should ensure that they have proper systems and checks in place in relation to minimum wage. Should your business undertake any of the above mentioned practices, an urgent review of the same should be undertaken and legal advice sought. 

You should also consider what similar practices or procedures in your workplace or your clients’ workplaces may attract minimum wage and therefore distort your calculations as to whether staff are actually receiving minimum wage.

What does this mean for you or your business?

No matter the size of your business, the ramifications of failing to pay minimum wage cannot be ignored. In addition to the civil and criminal penalties mentioned above, the negative publicity arising from local media reporting on the naming and shaming can inflict further financial damage on a business.

These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.