Member Article

Minimum wage enforcement

With Watson Burton LLP Law Firm

A minimum hourly rate of pay is an inherent right of all workers and is set by government. The rates set are based on the recommendations of the independent Low Pay Commission. There are three rates:

• an adult rate for workers aged 22 and over
• a development rate for workers aged 18-21 inclusive
• since October 2004 a rate for 16 and 17 year olds, all of which are subject to current statutory limits

The Department of Trade and Industry (DTI) in association with Her Majesty’s Revenue and Customs (HMRC) published the National Minimum Wage Annual Report 2005/2006. The key findings were:

• More than £3 million arrears have been identified for over 25,000 workers
• 61,000 calls were received by the National Minimum Wage helpline in 2005/06
• 32% of investigations undertaken by minimum wage enforcement teams uncovered incidences of non-compliance

The DTI has responded to these and related issues by publishing a ‘National Minimum Wage Enforcement: Penalty Notice Policy’, which means that not only may employers face claims for unlawful deduction from wages, but they will also be consistently fined if they have paid their workers below the national minimum wage and defaulted on an official demand to repay arrears. A copy of the policy can be found at http://www.dti.gov.uk/files/file36381.pdf.

Enforcement of the national minimum wage is carried out by HMRC. HMRC follows up complaints that the national minimum wage has not been paid, and remains unpaid. HMRC issues an enforcement notice giving the employer seven days from the date of service of the notice to make payment of the arrears. The employer has four weeks to appeal the enforcement notice. If the enforcement notice has not been complied with HMRC may commence civil proceedings immediately for recovery of the arrears as stated in the enforcement notice. This is irrespective of any sum which may be due by way of penalty.

If an employer has not complied with an enforcement notice within four weeks a penalty notice will be issued, dated within 10 days of the end of the notice period. A resultant financial penalty may then be imposed on the employer. This is calculated using a statutory formula as set out in section 21(3) of the National Minimum Wage Act 1998. It must be noted that the most serious failures to comply with the national minimum wage legislation may be dealt with by way of criminal prosecution.

The Penalty Notice Policy states that when HMRC compliance officers are deciding whether to issue a penalty notice they may take into account:

• the national minimum wage legislation
• the “National Minimum Wage Enforcement: Penalty Notice Policy”
• the facts of the individual case as far as they are available

Penalty notices will be issued as a means of getting employers to pay the arrears owed to the employee and in a bid to prevent employers failing to pay the national minimum wage to their employees. Appeals can be made and initially are done so in the Employment Tribunal. There are two distinct courses of appeal, one for enforcement notices and another for penalty notices. If you have any queries in relation to this article or any other employment matter, please contact Sarah Barratt at Watson Burton LLP (sarah.barratt@watsonburton.com)

This was posted in Bdaily's Members' News section by Ruth Mitchell .