The threshold for being named and shamed for flouting national minimum wage (NMW) rules has been raised to £500, while salary sacrifice schemes will no longer be taken into account
The government has reinstated the naming and shaming policy - the NMW Naming Scheme - after it was stopped in 2018 pending a review, which has now been completed.
From April 2020, businesses that fail to pay their workers the national minimum wage or national living wage will once again be publicly named.
The raising of the threshold from £100 to £500 will be supported by an increase in the frequency of public naming of non-compliant companies in a bid to improve the effectiveness of the measure as a deterrent.
Under the revised rules, any organisation which owes arrears of more than £500 in national minimum wage payments to their workforces will now be named.
The government said that ‘the new proportionate approach will mean that some businesses falling foul of the rules by minimal sums will not be named, provided they correct any errors’.
Business minister Kelly Tolhurst said: ‘Anyone who is entitled to the minimum wage should receive it – no ifs, no buts – and we’re cracking down on companies that underpay their workers.'
Businesses that are caught underpaying by less than £100 will be able to correct their mistakes without being named but will still have to pay back workers and can face fines of up to 200% of the arrears.
In 2018-19, HMRC identified £24.4m in arrears, for over 220,000 workers and raised over £17m in penalties for non-compliance.
Paul Holcroft, associate director at Croner, said: ‘Some employers may be nervous at the thought of ‘naming and shaming’, but they should remember that this provision is nothing new. Although it was suspended in 2018, it appears that this was done to make the system fairer and help employers who make genuine mistakes avoid being overly penalised.
‘Although scrutiny continues to be placed on the underpayment of the minimum wage, it looks like the government is prepared to take mitigating circumstances into account. That said, employers should take care not to become too complacent.
‘With more frequent publications expected, they should still bear in mind the potential reputational and legal ramifications from being named and shamed’, especially if this happens more than once.’
As well as reinstating the naming policy, the government has also announced a number of amendments to the current rules to clarify compliance.
Tolhurst said: ‘We want to make it as easy as possible for employers, especially small businesses and those trying to do right by their staff, to comply with the NMW rules, which is why we’re reforming regulations.
Salaried worker rule change
Some companies fall foul of national minimum wage rules as they employ so-called ‘salaried workers’, particularly in the retail, hospitality and leisure sectors, where employees work variable shifts over the year, which means pay fluctuates from month to month.
The government plans to amend Regulation 21(5) of the National Minimum Wage legislation to widen the range of pay arrangements available to business employing ‘salaried hours workers’, which are workers who receive an annual salary in equal instalments for a set number of contracted hours.
The change to salaried worker rules will come into effect from 6 April 2020, subject to parliamentary approval.
As result, workers who are often paid hourly or per day and consequently have different pay checks every month, such as those in the retail industry, can be classified as salaried workers.
This will allow employers to choose a flexible ‘calculation year’ for their workers. The calculation year is the reference point to identify the day in any calculation year upon which basic hours are exceeded as set out in regulation 24 of the NMW Regulations.
The government hopes that this will reduce non-compliance rates as companies will be able monitor the hours worked by salaried workers and identify potential underpayment of wages.
Salary sacrifice schemes
There has also been a change to the position on salary sacrifice schemes, which were often closed to employees earning the national minimum wage.
From April employers offering salary sacrifice and deductions schemes will no longer be fined if the scheme brings payment below the national minimum wage rate.
This will include benefit schemes where staff buy products from their employer and pay for these via salary deductions, and circumstances where employers offer pension benefits through salary sacrifice arrangements which do not reduce pay for NMW purposes.
The waiver will be subject to strict criteria – including that the worker has opted into the scheme and not been forced into it by their employer.
To maintain the integrity of the NMW rules, and to protect workers from accepting pay below the NMW, the government will not amend the Regulations relating to pay deductions and salary sacrifice.
Respondents to the consultation on changes to the rules, which closed in March 2019, warned that ‘amending the rules in such a way would present a great risk to the lowest-paid workers due to the subjectivity of the value of some benefits and pressure over worker participation’.
Charlie Barnes, associate director at RSM Legal LLP, said: ‘These changes should resolve a big issue for employers that offer salary sacrifice schemes. Previously, HMRC guidance confirmed that employers could not offer salary sacrifice schemes for benefits such as pensions, gym membership or cycle to work, to those on NMW as it was the post salary sacrifice pay that was looked at for NMW compliance purposes.
'As a result of these changes, employers will now be able to make these schemes available to those at the lower end of the pay scale so long as certain conditions are met.
‘It also looks as though this change will affect other schemes where employers make deductions from pay for the provision of products or services to their employees.
‘What isn’t clear yet is whether these rules will be retrospective meaning that employers might still have to self-correct for any NMW underpayments arising prior to these changes coming into effect on 6 April 2020.’
Deductions of national minimum wage for uniform and other items connected with the worker’s employment will continue to be penalised.
HMRC National Minimum Wage enforcement policy, issued 11 Feb 2020