COMPLIANCE
“HMRC will issue a notice of underpayment in all cases where it is established that arrears of the NMW were outstanding at the beginning of the investigation. This will be the case irrespective of whether the underpayment was accidental or if the employer had partly repaid the arrears when the notice was issued”
hours worked by, and the payments made to, workers. As per 59(1) and (2) National Minimum Wage Regulations 2015, the employer must keep sufficient records to establish that their workers have received the NMW, and in such a way that all the information about the pay received by a worker in a particular pay reference period is contained in a single document.
Consequences of non- compliance: service of notices of underpayment
underpayment within 14 days of its service, the penalty will be reduced by 50%. Therefore, in any instances of non- compliance it is vital that the employer reacts promptly and without undue delay in order to avoid suffering further financial penalisation. Consequences of non- compliance: naming and shaming The naming scheme first came into force in January 2011. After a period of suspension and revision, the scheme restarted in February 2019. It’s intended to raise awareness and encourage compliance with NMW legislation by publishing the names of companies that fail to comply. The DBT released its Round 20 report on 20 February 2024, which named 524 employers that had failed to pay employees NMW. In total, the organisations named had to pay £16 million that they owed to their staff and faced financial penalties of up to 200% of the respective underpayment. News of an employer’s failure to pass a NMW audit can obviously serve a significant blow to a company’s reputation, potentially leading to a loss of business opportunities and partnerships. To avoid such reputational damage, it’s essential that payroll teams are alive to the issue of potential underpayments and regularly check employees’ wage calculations to avoid falling foul of the naming scheme.
that should have been paid to the workers on their behalf. Following the judgment, if the debt remains outstanding, HMRC will take further steps to enforce the debt. Consequences of non- compliance: the right to inspect It is also worth noting the right to inspect pay records under s.10 NMWA 1998. This gives workers and ex-workers (thus including claimants of underpayment) the right to not only see the pay records, but “to inspect and examine and copy”; and to be accompanied “by such other person as the worker may think fit”. If the employer fails to allow access to records, the sanction is extraordinary. S.11 NMWA 1998 contains fixed compensation of 80 times the hourly NMW rate in force at the time of the award (80 x £11.44 = £915.20). There is no defence available for non- compliance. Provided there is proof that the request for access to records was delivered, the employer has a strict 14-day window in which they must provide access. A prompt response Where instances of non-compliance with NMW regulations arise, employers and respective payroll teams should address the situation head on and in a timely fashion. Especially following the conclusion of a HMRC audit, if any issues are raised it is vital the employer pay the notice of underpayment as soon as possible otherwise they leave themselves open to potential court or tribunal proceedings and
By way of background, the Department for Business and Trade (DBT) is responsible for NMW policy and HMRC enforces the NMW legislation on behalf of DBT. Following an audit, if the HMRC officer concludes NMW has not been paid, they may issue a notice of underpayment. The notice will detail the amount of outstanding NMW to be repaid by the employer and state the requirement for the payment of a financial penalty to the Secretary of State within 28 days of service. HMRC will issue a notice of underpayment in all cases where it is established that arrears of the NMW were outstanding at the beginning of the investigation. This will be the case irrespective of whether the underpayment was accidental or if the employer had partly repaid the arrears when the notice was issued. This highlights the importance of the relevant payroll team keeping accurate records of employees’ working hours in order to avoid any errors or underpayments due to erroneous wage calculations. That said, it is worth noting HMRC has discretion over whether to issue a notice of underpayment. Each decision is made on a case-by-case basis. However, even in instances where it has been decided a notice of underpayment will not be issued, HMRC will still require the employer to pay any arrears owed. In respect of the penalty served alongside the notice, this is calculated in accordance with the National Minimum Wage (Amendment) Regulations 2016. The Regulations provide the employer must pay 200% of the total underpayment due to the employee. There is a maximum penalty of £20,000 per underpaid worker. It’s important to note that if the employer complies with the notice of
Consequences of non- compliance: recovery of underpayments
heightened financial penalties. A prompt response is similarly
Under s.19D(1) NMWA 1998, there are options available to HMRC if an employer doesn’t comply with a notice of underpayment. Accordingly, the enforcement officer can issue civil proceedings either in the civil courts or an employment tribunal to recover the sums
endorsed with regard to an employee, or ex-employee, actioning their right to inspect. Employers must also be aware of the naming scheme and the impact this could have on their business from a reputational perspective. n
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| Professional in Payroll, Pensions and Reward |
Issue 105 | November 2024
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