Since their introduction, the National Minimum Wage (NMW) and National Living Wage (NLW) have imposed legal obligations on employers to pay employees at least a set rate for the hours they work. Unlike the voluntary ‘real Living Wage’ set by the Living Wage Foundation (which has a separate rate for London), NMW and NLW rates are the same throughout the UK, regardless of where the employee lives and works.

Employers who fail to comply with the NMW and NLW requirements risk not only being forced to pay back-pay to affected employee(s) and penalties of up to 200% of the underpayment, but also being publicly ‘named and shamed’. 

The most recent ‘naming and shaming’ reveals 389 employers across sectors including social care, sports and retail have been found to have underpaid employees by a total of £7.3m. Combined financial penalties totalling £12.6m have also been imposed, but the overall cost to these employers could be much higher once the resulting negative publicity and reputational damage of being ‘named and shamed’ is considered. 

Accidental non-compliance

The underpayments revealed by the latest list of non-compliant employers range from more than £1.5m down to less than £500 (just £25 per employee), demonstrating that even the smallest employers can be exposed for relatively minor failures to pay their employees at least the legal minimum rates. 

Whilst no details are published of why the employers on the list failed to pay the NMW/NLW, some instances may have been unintentional. 

Deductions from pay can reduce pay for NMW/NLW purposes, creating a breach even where the ‘headline’ rate of pay is more than the minimum amount. Deductions for amounts connected with the employment, such as costs of uniform or protective equipment, are a common example of how accidental NMW/NLW breaches can occur. Pension contributions or other deductions made under salary sacrifice arrangements can also result in pay falling below the required minimum amount. Guidance on GOV.UK includes NMW/NLW calculators for employers and for workers to check compliance. 

There are also complexities in calculating working hours for NMW/NLW purposes. We’ll be covering these in a future edition of Employer Focus.

Closer scrutiny of employers?

The recently-established Fair Work Agency (FWA) brings together enforcement of key employment rights into a single body, with powers to investigate breaches and take action against non-compliant employers, including issuing civil penalties and bringing proceedings to the employment tribunal on a worker’s behalf. 

The FWA has already taken over responsibility for NMW and NLW compliance, and will publish the lists of employers found to have underpaid employees in future. Its role is also set to expand beyond compliance, with minimum pay requirements to cover enforcement of other employment rights such as holiday pay and statutory sick pay. 

Whilst the FWA does not bring any new legal obligations for employers, the Government has committed it to acting swiftly to investigate complaints raised by employees, with a promise to ‘name and shame’ employers who break the law within one year of the case closing. 

The FWA’s remit is not purely to punish employers who fail to meet their obligations. It also aims to help employees understand their rights and to help employers comply with their duties and responsibilities. The Government’s guidance hub on new employment rights is covered elsewhere in this month’s Employer Focus.

This article reflects the position at the date of publication shown above. If you are reading this at a later date you are advised to check that that position has not changed in the time since.   

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