Dundee last week pledged itself to be the UK’s first living wage city. More than 50 employers have agreed to pay a living wage to its employees covering a quarter of the city. But let’s forget Dundee for now. What about The Simpsons? Have you heard Montgomery Burns making any pledges to pay his employees the living wage at the power plant? I haven’t. Given the disasters that regularly happen in that particular workplace (nuclear meltdown due to persistent sleeping on the job to name just one), it’s safe to assume that Mr Burns hasn’t paid too much attention to National Minimum Wage.
Mr Burns will hopefully know that there are five rates of a minimum wage that apply depending on the worker’s age. NMW is assessed over a specific period of time. The timescale used to assess NMW is called the “pay reference period” which is a month unless the employee is paid weekly in which case it is a week. The pay reference periods cannot be averaged and Mr Burns will, therefore, have to look at each stand-alone month when assessing NMW. It can get pretty complex in (for example) the care industry where workers are paid to be on call while sleeping. Employers that do find themselves in this position, should certainly take legal advice to avoid falling foul of the law.
What Mr Burns did not know about pay deductions
What is a deduction for NMW purposes and does this affect what counts as NMW? Firstly, deductions do affect NMW and even if Mr Burns paid his employees NMW, any deductions could mean he falls short of this requirement. There are two types of deductions:
- Any deductions made directly by Mr Burns at the source of pay in relation to the worker’s expenditure in connection with their employment; and
- Payments to any person by the worker in connection with their employment even if this is not intended to be repaid by Mr Burns.
The first point is relatively self-explanatory and would relate to expenses such as fuel. The second is a little less obvious.
HMRC are hot on uniforms and if, for example, Mr Burns requires his receptionist to wear high heels this will count as a deduction of wages even though the employee pays for them herself. This is true for any uniform requirements. If the purchase of the shoes causes the employee’s pay over the month (unless they are paid weekly in which case it would be a week) to fall below NMW, then this would be a breach of the regulations and HMRC would seek to enforce their powers. For me personally, I am required to wear a suit and smart shoes to work. Even though I pay for it, this counts as a reduction in my month’s pay for NMW purposes in the month that I bought the suit. Any savings schemes that Mr Burns offers to employees, can also trigger an NMW breach where the savings are not held in a distinct account and Mr Burns retains control of it.
HMRC have the role of enforcement with criminal sanctions and financial penalties attaching to a NMW breach. Interestingly, it is not just the directors for the power plant that will be liable but also “officers” responsible for overseeing day to day management of the employees. HMRC will also be able to enforce NMW using enforcement notices over a period the previous six years. HMRC can impose a penalty of 200% of the underpayment which (predictably) does not go back to the employee but instead into the public purse. Employers will also be publicly named and shamed for underpaying their workers. If a complaint is made by an employee to the Employment Tribunal, it is presumed that the employee is entitled to the NMW unless the employer can prove otherwise. Mr Burns should, therefore, keep records of pay and hours worked to avoid leaving an open goal for employees.
If TUPE applies in a change of ownership or new tender scenario (more specifically, a service provision change) then the transferee will be liable for the full NMW liabilities of the previous employer (the transferor). This rule has been in force since 2 July 2018.
This topic is not straightforward and there are various tools that can assist employers in the first instance. BEIS and ACAS have published a national minimum wage and living wage guidance for employers and employees. Hopefully, Mr Burns has a look at these or he could have Chief Wiggum at his door!
For help and advice on national minimum wage and employment law please speak to a member of the Blackadders Employment Law team.
Duncan Milne, Trainee Solicitor
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