New Measures Introduced To Ensure Compliance With The National Minimum Wage

The Department for Business, Innovation and Skills has announced a package of measures introduced to improve compliance with the national minimum wage (NMW) and, in time, the national living wage (NLW) (which is due to be introduced in April 2016). This comes out at the same time of employer’s concerns about the effect of the new national living wage on job prospects.

As we reported in our August Newsletter (see here) the Chancellor announced a new National Living Wage (NLW) in the last budget.

Following this announcement a number of employers have voiced their concerns over the effect of the NLW on the UK jobs market. According to a Manpower survey employers are already anticipating the extra costs associated with the introduction of the NLW (which will be £7.20 per hour on introduction in April 2016) and are curtailing their recruitment accordingly.

Another consequence of the introduction of the NLW is that some employers may try to bypass the new legislation completely by taking on younger or self employed workers who will generally not be entitled to the NLW. On 1 September 2015, BIS announced a package of measures intended to improve compliance with the NMW and the NLW when the latter is introduced. Non-compliant employers will face higher fines and will potentially be disqualified from holding company directorships.

The measures include:

  • Doubling the penalties for non-payment of the NMW and NLW. Penalties will increase from 100% of arrears to 200% of arrears but will be halved if employers pay within 14 days. The overall maximum penalty of £20,000 per worker remains unchanged.
  • Increasing the budget for enforcement of the NMW and NLW in 2016.
  • The establishment of a new HMRC team dedicated to pursuing the most serious cases of employers deliberately not paying the NMW and NLW. The team will have the same powers currently exercised by HMRC including the imposition of penalties, referring cases to the Crown Prosecution Service for criminal prosecution and naming and shaming the worst-offending employers. BIS revealed that HMRC's current approach is to target the high-risk areas for non-payment of the NMW, which are currently the social care, hairdressing and retail sectors.
  • The introduction of a new penalty of disqualification from being a company director for up to 15 years for the non-payment of the NMW and the NLW.
  • The creation of a new position called the Director of Labour Market Enforcement and Exploitation, which will oversee enforcement of the NMW and NLW, the Employment Agency Standards Inspectorate and the Gangmasters Licensing Authority.

In addition to the measures detailed above, BIS announced that in Autumn 2015 the government will consult on the introduction of a new offence of aggravated breach of labour market legislation. BIS has not released further details of this new offence but the consultation will also include the proposal to expand the Gangmasters Licensing Authority's investigatory powers in order to tackle serious labour exploitation.

The government has also pledged to improve the guidance and support made available to employers and work with payroll providers to make sure that payroll software incorporates mechanisms to ensure compliance with the NMW and NLW. BIS did not give details of how this would be accomplished.

It is imperative that employers do not find themselves in breach of the NMW/NLW. Difficult decisions may have to be made including changes to current remuneration packages to fund any increased costs in this area. Such changes need to implemented carefully and we can help you navigate the changes where required.