The latest 'name and shame' list from HMRC of companies underpaying the legal minimum wage highlighted the fact many employers lack appropriate governance and controls to ensure they avoid falling foul of National Minimum Wage (NMW) regulations.
Although only a handful of North East businesses were named in the latest report for underpaying the legal minimum wage, there were over 20 in the Yorkshire and Humber region. And with many more significant scale reviews currently in progress by HMRC, the list – and the aggregate value of underpayments – is likely to rise.
Of course, most employers do not attempt to wilfully avoid their minimum wage responsibilities. More often than not, the issue is they have ineffective policies, systems or procedures. I doubt there are many companies in the region that are 100% effective.
Employers need greater understanding of the complex rules and how those rules apply to their day-to-day operational working practices. It is important their procedures and processes adequately reflect the working practices and are then rigorously tested. It's not simply what you document in a policy that determines whether you are NMW compliant – it is also what you do in practice.
Across the region, it is hospitality, social care and retail businesses that are most likely to be caught out by the NMW regulations, and there is certainly a significant focus from HMRC on these businesses. However, the latest 'name and shame' list also includes businesses ranging from sporting clubs to cleaning companies.
Employers need to be aware that HMRC is no longer relying on a review of the written documentation to assess compliance. It is going much deeper, undertaking multiple site visits across the business to see things for themselves and to interview the workers.
Many breaches of the NMW regulations can occur where the employee's effective hourly rate is reduced by having to contribute to uniform costs or to buy new clothes in order to comply with a work dress code. Travel and training are also often not recorded as working time. Similarly, pre and post 'clock in-off duties', such as handovers or security checks, may be excluded from the paid hours worked.
HMRC's investment in NMW compliance has grown significantly in recent years, to more than £26m per annum. That extra investment is allowing it to proactively target those employers judged most at risk of not paying the minimum wage.
The enforcement team has also increased proportionately, allowing HMRC to undertake many more focused and detailed reviews than in the past, and almost £1.5m is being spent on raising awareness of workers' entitlement to the minimum wage.
As a consequence of those targeted campaigns, awareness among employees of the NMW regulations has risen substantially. The number of employees reporting potential breaches of the regulations continues to rise, which often leads to a full review of the business from HMRC.
With penalties of up to 200% of the liability, those errors can prove extremely costly financially, but are also damaging to the employer's good reputation.
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