HMRC have been able to name and shame employers under the current rules since 2013. The way this works is that once a notice of underpayment is issued, HMRC will refer a matter to BEIS (Department for Business, Energy and Industrial Strategy) who automatically name and shame the culprit except where limited grounds of appeal can be made out.
In March 2018, 178 employers were named for NMW underpayment, of which 43 were in the hospitality sector, and 18 were in the retail industry with the government fining the 178 employers a total of £1.3 million in penalties. The recruitment sector has not escaped scrutiny by HMRC, and we have observed a significant increase in the number of HMRC inspections across the recruitment sector generally.
The NMW is a specified minimum hourly rate of pay to which most workers are entitled. All employers are obliged to pay the NMW, irrespective of their size. Because NMW is expressed as a minimum hourly rate, it is necessary to determine the number of hours a worker has worked which have to be taken into account for such purposes.
If a recruiter supplies a worker to a client, it will be the recruiter who is considered to be the “employer” for the purposes of paying the NMW. In most cases where a worker is supplied by an employment business they will be paid according to the number of hours that they work, known as “Time Work”. The hours of work that are relevant for the purposes of NMW for a worker paid hourly are those hours when the worker is actually working. Overtime premiums are not included within NMW calculations; therefore, these premiums cannot be used to take a worker’s average pay above the NMW where ordinarily they would be paid below the NMW. For example, if a worker over 24 is paid an hourly rate of £7.00 for their core hours and is paid “time and a half” as an overtime-hourly rate, this overtime rate will not be taken into account when calculating whether the worker receives the NMW.
Recruiters will need to carefully consider the period in which workers are paid as there will only be a breach of NMW if, a worker’s pay falls below the NMW threshold in a given reference period (the period in which an employer pays a worker i.e. per day, week or month). The maximum pay reference period for NMW is one month.
Recruiters can still be in breach of the NMW even if paying workers the NMW, if the worker’s pay is reduced due to deductions or HMRC determine that the worker is working hours longer than the contract states to be the case.
The following areas present a high risk for non-compliance and the potential for employers to make innocent mistakes in applying the legislation:
- Uniform deductions/payments: The National Minimum Wage Regulations (“NMWR”), Regulation 13(a) provides the legal authority that any deductions in respect of expenditure in connection with employment (for example, for the purchase uniforms) should be taken into account in determining NMW. In the last few months, retailers such as Wagamama and TGI Fridays have hit the headlines for failing to pay staff the NMW in relation to this very issue. It is widely accepted that any requirement for a worker to purchase their work clothes at a discounted rate from their employer will be categorised as a deduction reducing the average rate of pay for NMW purposes. This was highlighted as Monsoon was ordered to pay more than £100,000 in 2015 for this practice. Further, even the requirement to wear a simple uniform such as a style or colour of clothing is likely to amount to a uniform and will reduce the average rate of pay for NMW purposes. Wagamama was required to repay £133,212 to 2,630 workers because of a requirement to wear casual black jeans or a skirt which was not reimbursed. TGI Fridays were also reportedly required to repay £59,348 to 2,302 workers in relation to a requirement to purchase black shoes as part of a uniform. Therefore, recruiters may wish to re-consider their uniform policies, if they do not already cover the costs of uniform but ask workers to wear specific items of uniform as having a specific uniform is common within the hospitality sector.
- Security checks: Any time that is spent by a worker undergoing bag searches and security checks before or after their shift has finished must be paid for this time. When taking this time into account, the worker is paid below the NMW this could result in a breach to the NMWR. Transline hit the headlines for this practice and were found to have paid workers less than the NMW while working for Sports Direct where workers were required to go through searches at the end of each shift by Sports Direct security staff, for which their time was unpaid. Sports Direct Founder, Mr Ashley subsequently admitted to MPs that staff were being paid less than the minimum wage because of the retailer’s lengthy search processes. In 2017, Quality Course Limited who traded as Transline was ordered to pay over £310,000 to 1,421 workers.
- Training: Any time that is spent by a worker in training when the worker would otherwise be working must receive NMW. This covers training for new recruits or training for everyone. Often a client will ask a work-seeker to undertake a service which would be a trial shift to assess their fitness for work, and this is likely to amount to time in which the worker should be paid the NMW.
- Travel time: For many recruiters, the worker will have no fixed place of work, and this is normally where the assignment is carried out. Often the worker will have travelled to this place of work on their own and would not have otherwise been working then this period of travel is unlikely to be counted as travel time for the purposes of the NMWR. However, workers will need to be paid for travelling on business during normal working hours in accordance with Regulation 27(3)(a), NMWR.
What Should I Do?
Hospitality and retail are sectors where pay and margins are tight, and often it isn’t possible to pay workers a buffer to avoid NMW headaches. Employment businesses need to be extra vigilant as it will be them who will be liable for ensuring workers are paid the NMW. Recruiters should adopt stringent procedures to ensure that all working time is recorded and paid correctly. To ensure compliance, our advice is regular audits should be carried out to identify workers paid at or just above the NMW as any deductions/additional Time Work could take their wages below the NMW.
NMW rate increases occur every April, so be aware that new NMW rates are implemented immediately and ensure that systems are in place to identify when workers move from one rate to another. Employers should also pay close attention to HMRC guidance to ensure compliance with any policy changes and monitor press releases which may illustrate what is on the HMRC ‘watch list’.