Minimum wage worker

NMW underpayment hits record high as employers struggle with guidelines

Last year saw a record number of individuals being paid less than the minimum wage, according to the Low Pay Commission’s (LPC) annual report on the UK’s labour market.

The LPC’s analysis identified 439,000 individuals who were underpaid in total. This figure includes 369,000 workers who were paid less than their entitlement under the National Living Wage (NLW) because they are aged 25 or over. That amounts to 23% of all individuals entitled to the NLW rate of £7.83 an hour as it was then, or £8.21 an hour as it is now after April 1, 2019.  

The LPC’s figure does come with several caveats, however: It is derived from the Annual Survey of Hours and Earnings (ASHE).

This is not a true estimate of non-compliance for a number of reasons, but namely because certain cases of underpayment can be legitimate. For instance, if employers provide accommodation or commission and bonuses. The data may also fail to identify workers as apprentices.

That said, the LPC’s report said the figure “is consistent with a trend of increasing underpayment since the introduction of the NLW in 2016”.

Despite the increase in underpayment, the LPC report is not highly critical of HMRC, the NMW/NLW’s rather unlikely enforcer. While the minimum and living wage is regulated by The Department for Business, Energy and Industrial Strategy (BEIS), enforcement is left in the hands of the tax authority.

And according to the LPC report, HMRC’s capabilities have grown considerably in recent years due to budget increases since 2016 and the recruitment of more enforcement officers.

This view certainly aligns with the figures: HMRC enforcement teams recovered £15.6m for 200,000 workers in 2017/18, up almost 50% from the amount reclaimed the year previously. But the commission wasn’t entirely satisfied, either.

“These increases were driven primarily by a relatively small number of large and complex cases, mainly involving employers in the retail sector,” the report reads. Indeed, it does seem like the road to NMW ruin is mostly paved with good intentions.

Most of the big NMW enforcement cases reported on AccountingWEB were as a result of error. As RSM’s head of employment solutions Bill Longe previously commented, “The vast majority of employers are not making deliberate errors and are being caught out by the complexity of the rules”.

Prominent names like Wagamama, TGI Friday,  Marriott Hotels, Iceland and the temping firm Staffline are all examples of employers simply getting it wrong. Responding at the time, a  spokesperson for Wagamama characterised the chain’s underpayment as an “inadvertent misunderstanding”.

The LPC’s report did note that employers frequently complained about the opacity of NMW guidance and of the HMRC enforcement process. “In this respect, we see the recent consultation by [BEIS] on the NMW regulations as a positive step in meeting employers’ concerns, but one that needs to be sustained by continued positive engagement with employers of all sizes.

“We urge the government to invest time in getting the guidance to employers right, as this will simplify the task of enforcement in the longer term.”

Last year, the UK’s director of labour market enforcement, Sir David Metcalf, made similar recommendations in his first Labour Market Enforcement Strategy report, noting a lack of support services for employers.

“I believe that the enforcement bodies can generally improve their support and education of employers to reduce ‘accidental’ non-compliance,” said Metcalf.

“For HMRC and BEIS, this will include placing greater emphasis on developing a supportive and compliance-based approach to enforcement by further developing their triage and risk assessment processes, improving employer guidance and adopting a more supportive approach to employers seeking help and advice.”

The LPC said it heard frequent complaints during its field visits to employers over “a lack of clarity and consistency on guidance” leading to unnecessary confusion and cost. “The risk of penalties and inclusion in naming rounds has also increased sensitivity over the clarity of guidance.”

The issue of publicly naming non-compliant employers also cropped up in the report, with the LPC criticising what it sees as a “delay” in publishing names.  There were three rounds of naming in 17/18 (in August and December 2017 and March 2018), as well as a further round in July 2018.

But there has been nothing since. The delay since the previous round in July 2018 undoubtedly represents a missed opportunity to keep the NLW, and the issue of compliance, in the public eye.

“We therefore repeat the recommendation we made in 2017: that the Government restart regular naming rounds to create momentum, increase coverage and allow stakeholders more time to prepare and support.”



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