REWARD INSIGHT
Age matters with NMW: hidden pitfalls
Danny Done, managing director at Portfolio Payroll, provides advice
N ational minimum wage (NMW) increases – now seen in April every year rather than October – require employers to pay at least the minimum prescribed rates according to their age. Therefore, the major determiner for the legal minimum pay levels is therefore a worker’s age. The interaction of this law with the newer laws on age discrimination is one which employers should note. Age discrimination was outlawed in Great Britain in 2006, meaning that it is unlawful for an employer to treat someone less favourably than another employee because of their age. On the face of it, this would appear to be at odds with separate legislation on the NMW which provides a system, containing several age-related categories, whereby employers can treat employees differently because of their age in an area of fundamental importance – how much they get paid to do their job. The Equality Act 2010, which consolidated several pieces of equality laws including the Employment Equality (Age) Regulations 2006, contains several statutory exemptions which allow the continuance of what would otherwise be considered an act of age discrimination, and the NMW is one of these exemptions. Employers may pay older employees at a higher rate than younger employees who perform the same job without the threat of an age discrimination claim at employment tribunal. In other words, employers may pay 16- and 17-year-old employees less than those aged over 17; and 18–20-year-old employees less than those aged over 20. On the face of it then, the entire pay structure of the NMW is discriminatory on the grounds of age. However, various exemptions are
contained within the law which still allow what would otherwise appear to be discriminatory behaviour. Specifically in relation to the NMW, the sliding scale according to age encourages the employment of younger workers by permitting lower pay rates and also acknowledges the status of an apprentice who, by their very nature, is not yet fully proficient in the job. ...employers who breach the law can expect to be issued with a fine of 200% of the underpayment... This will allow employers to use the development bands of the minimum wage without the threat of legal challenge on the grounds of age discrimination. However, employers cannot rely on this exemption if they do not base their pay structure on the NMW legislation. In order to remain within the realms of legality, employers must still base their pay structure on the NMW bandings as amended over the years. This is an important element about the application of the legislation for employers to note and should be remembered when setting pay rates for staff. Although employers may consider themselves ‘good payers’ by paying more than the minimum wage rates to their employees, their generosity may result in legal challenge by the younger employees. For example, an employer paying all its adult workers £10 per hour and all its 16–20-year-old shop assistants £6 per hour
is acting lawfully, whereas a retailer paying its adult shop assistants, say, £10 per hour and its 16–20-year- old shop assistants £8 per hour is acting unlawfully where age discrimination is concerned. This is because the rate paid to employees whose age falls into the younger categories for NMW are being paid more than the current highest rate (national living wage of £7.50 per hour) and is therefore operating outside of the restrictions of the NMW exemption. In order to avoid this situation in terms of preventing an age discrimination claim, the rate for the young employees should have originally been set at a rate below the highest minimum wage rate at the time. Separately, it is important that employers maintain a general awareness of the age of their workforce in order to remain compliant with NMW law. Doing this will enable them to increase workers’ wages when their birthday means that they move up into the next banding which means pay increase is required. This means that pay rates for individual workers can increase at varying times in the year other than each April. On a final note, failing to pay the correct minimum rates to workers can result in a financial penalty levied against employers. Enforcement against underpayment has increased significantly over recent years and now employers who breach the law can expect to be issued with a fine of 200% of the underpayment found. Consistent naming and shaming exercises will also see the name of the employer, their location, the number of workers underpaid and the total amount of underpayments published on the government website. The latest round of naming and shaming saw a list of 359 employers published. n
| Professional in Payroll, Pensions and Reward | May 2017 | Issue 30 36
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