Aberdeen bottom of league for NMW compliance

The Scottish oil city of Aberdeen tops the list of places where HMRC conducted the greatest number of investigations into the underpayment of the national minimum wage (NMW) last year, according to Pinsent Masons

The law says HMRC conducted 10.2 NMW investigations per 100,000 population in Aberdeen. Blackburn came second with 9.8 investigations per 100,000 population, followed by Birmingham (9.6), Belfast (9.1) and Leicester (9).

Birmingham and Leicester have both featured in the top ten cities for the highest number of NMW investigations per capita in each of the last three years.

Pinsent Masons points out that several cities appearing regularly in its league table are centres for fashion clothing manufacturing.

There has been growing scrutiny from HMRC on the operations of clothes manufacturers following a parliamentary report in 2019 on the UK’s clothing industry which called for a more proactive approach to the enforcement of the NMW and more HMRC investigations. 

The firm says that in order to meet quick turnaround times and low costs for their products, clothes retailers often sub-contract production to small, local manufacturers in the UK. In some cases, some of these smaller manufacturers are suspected to have poorer compliance with NMW rules.

Overall, the number of NMW investigations conducted by HMRC increased to 3,561 last year, up from 2,807 in 2018/19.

Penalties for employers found to be underpaying can be up to 200% of arrears owed to workers up to a maximum of £20,000 per worker. HMRC imposed 1,008 penalties worth £17.1m in 2018/19, up from 810 and £14.1m in 2017/18.

An employer may also be ‘named and shamed’ by HMRC in cases where the amount owed to workers exceeds £500. This threshold drops to £100 if an employer has previously been found to have breached NMW laws. From 2020, HMRC plans to name and shame employers more frequently.

Steven Porter, partner at Pinsent Masons, said: ‘Businesses that do not pay their workers the NMW are leaving themselves exposed to huge fines – fines that can easily stretch into tens of thousands of pounds.

‘The vast majority of employers breach NMW rules inadvertently and sometimes as a result of unexpected complexities of the rules’ It is important employers regularly review their payment practices and self-correct any mistakes. Doing this reduces the chances of being investigated and fined.’

There have been moves to simplify the operation of the NMW rules, although some employers report difficulty in accounting for pay deductions such as salary sacrifice and payment for goods and services through payroll.

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