In February 2020, the Government announced that it would resume its naming and shaming policy for businesses who are failing to pay their workers the National Minimum Wage (NMW). The scheme, which was suspended last year whilst the Government consulted on how it was working, is set to resume from 6 April 2020.
The Government has also announced a number of other changes that will be coming into effect on the same date regarding how the National Minimum Wage legislation operates:
Salary sacrifice
The Government has confirmed that, in some cases, employers offering salary sacrifice and deduction schemes will no longer be subject to financial penalties (or naming and shaming) if the scheme results in employees receiving pay below the NMW rate. (Whilst most salary sacrifice schemes reduce pay for NMW purposes, salary sacrifice for pension contributions is excluded.)
Importantly, however, the current NMW rules are not changing. Where a salary sacrifice scheme brings pay below the NMW level, this will still be a breach of the legislation, and employers will still be required to repay any arrears of pay due to their staff. The only difference post-April is that in limited circumstances, the employer will not face the additional penalties or being named and shamed as a result.
Penalties will only be waived subject to strict criteria, including that the worker has opted into the scheme.
Instead of a blanket punitive approach towards businesses falling foul of the rules, the Government has indicated that it will increase its support for employers to comply with NMW legislation with improved guidance available through its website and a helpline for access to information directly from HMRC.
It also intends to visit selected new and small businesses to educate them on the NMW and support those businesses in getting their practices right from the start. The Government hopes that supporting and educating businesses will help to better protect staff.
The threshold for “naming and shaming” employers
In a welcome change, the Government has also confirmed that they won’t name and shame employers who only owe very small arrears under the NMW provisions.
Going forwards, only firms which owe arrears of more than £500 in NMW payments to their workforces will be named (except in circumstances where there has been other non-compliance with the legislation in the last six years, when the current threshold of £100 will continue to apply).
This is a welcome development as businesses who inadvertently underpay by small amounts will no longer face the reputational risk and adverse publicity of being publicly named and shamed.
What will this mean in practice?
With £24.4 million in arrears (for over 220,000 workers) identified by HMRC in 2018 to 2019, it is clear that many businesses are still failing to comply with their duties as employers. It will, however, remain to be seen whether streamlining the naming and shaming scheme, to only capture those organisations that deliberately flout the rules or do so on a larger scale, will have a positive impact on these statistics.
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This contains a general overview of information only. It does not constitute, and should not be relied upon, as legal advice. You should consult a suitably qualified lawyer on any specific legal problem or matter.
