Government set on making sure employers don’t flout regulations surrounding National Minimum Wage

National Minimum Wage and the National Living Wage

The government is set on making sure employers do not flout the regulations surrounding National Minimum Wage (NMW). This article should serve as a reminder to employers the importance of thorough record keeping to evidence correct application of the NMW.
 
To support the government’s determination, from April 2015 the Small Business, Enterprise and Employment Act 2015 became an act of law.

This Act is extremely important as it will make way for a number of amendments to the National Minimum Wage regulations.  

From 26 May 2015, The Small Business, Enterprise and Employment Act 2015 brought into effect:

  • Section 152 which inserts section 19A into the National Minimum Wage Act 1998, to provide that the financial penalty in a notice of underpayment will be set at 100% of the arrears owed to each worker to who the notice relates, subject to a maximum of £20,000 per worker. Previously the £20,000 limit applied to each notice of underpayment.

June 2015 saw the first commencement order made under the Small Business, Enterprise and Employment Act 2015 published and brought  into effect the maximum penalty of £20,000 which can now be calculated on a per worker basis rather than on a per employer notice basis!!

Year 21 and over 18 to 20 Under 18 Apprentice*
2015     £6.70   £5.30    £3.87      £3.30

 

 

 

* This rate is for apprentices aged 16 to 18 and those aged 19 or over who are in their first year. All other apprentices are entitled to the National Minimum Wage for their age.

It is the Low Pay Commission (LPC) who is responsible for advising the government on the appropriate increases to NMW. During 2015 the LPC have been gathering evidence from across the UK via road-shows to understand the impact of the NMW on business. The last road-shows will be held in the South in late November, but employers can still have their say or request a meeting with the LPC by contacting rosalind.hands@lowpay.gov.uk.

There are of course those who believe the NMW is used for political purposes; whether to gain votes before an election or just to have favour with the British Public. It is, however, a real balancing act as the more government give to individuals, the less favourable they become to employers. There is, however, a different trend becoming apparent in Scotland. In June of this year the Scottish Government was accredited as a Living Wage employer, becoming the first government to join the scheme. There are almost 1500 accredited Living Wage employers across the UK and more than 200 are in Scotland.

The UK Living Wage rate is £7.85 per hour, more than 15% higher than the NMW of £6.70 per hour.

The government also published a policy paper on their rational for rejecting the Low Pay Commission’s recommendation on the National Minimum Wage rate for apprentices from October 2015. In February 2015, the Low Pay Commission (LPC) recommended NMW rates to come into force from 1 October 2015. Following this the Government proposed to depart from the LPC’s recommendation to increase the Apprentice rate by 7p (2.6 %) from £2.73 to £2.80, in favour of increasing the rate by 57p to £3.30, the largest ever increase (21%) in the NMW for apprentices.

The National Living Wage

The Living Wage referred to above, shouldn’t be confused with the National Living Wage as announced in the Summer Budget. The government didn’t appear to want to take recommendations from the Living Wage Foundation and instead announced that from April 2016 there will be a new National Living Wage (NLW) for workers aged 25 and above; this introduces a new premium on top of the current National Minimum Wage.

From April 2016, the new NLW will be set at £7.20 - a rise of 50p relative to the current NMW rate. This means that employers will have two pay increases to implement; the first was 1 October 2015 and then again, for those over the age of 25 years in April.  
 
The government will ask the Low Pay Commission (LPC) to set out how the new NLW will reach 60% of median earnings by 2020 which based on earnings forecasts, this means that the NLW will reach the government’s target of over £9 by 2020. The government also decided to increase the Employment Allowance from £2,000 per annum to £3,000 per annum to help businesses absorb these costs.

National Minimum Wage offenders named and shamed

In July of this year, 75 more employers were named and shamed for failing to pay their workers the National Minimum Wage. Between them, the named companies owed workers over £153,000 in arrears, and span sectors including hairdressing, fashion, publishing, hospitality, health and fitness, automotive, social care, and retail. This brings the total number of companies named and shamed under the scheme, which was introduced in October 2013, to 285 employers, with total arrears of over £788,000 and total penalties of over £325,000.

If an employer believes they may have made an error and need to notify HMRC and you do so right away then they won’t have to pay a penalty (remember can be up to £20,000 per employee) and they will not be named and shamed. For help go to https://www.gov.uk/nmwcampaign.

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