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National Minimum Wage: The Return of 'Naming and Shaming'

13/02/2020

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United Kingdom

BEIS has confirmed the reintroduction of the "naming scheme" (formerly "naming and shaming") for employers that fall foul of national minimum wage ("NMW") rules. Changes to the scheme will provide more support for employers in relation to compliance and will also relax the rules surrounding salary sacrifice. The reintroduction of the naming scheme will be an unwelcome announcement for some employers, but should not come as a surprise. Following recent reports such as the Resolution Foundation's "Under the Wage Floor" calling for greater penalties on employers failing to meet their pay obligations, and HMRC estimates that close to 11,000 employers are underpaying NMW, it is apparent that the existing enforcement mechanisms are not effective in isolation.
 
As the top bracket for NMW rates for over 25s will increase to £8.72 per hour from 6 April 2020 (with a government goal of reaching £10.50 per hour by 2024), it is inevitable that a significantly greater number of employers will be at risk of falling foul of NMW rules as minimum pay rates steadily rise. The reintroduction of the naming scheme is likely to have the broader benefit of raising awareness for employers, but also increasing PR risk alongside the existing risk of penalties for non-compliance.
 
The threshold for an employer to be named has increased from £100 to £500. Additionally, and in perhaps the most significant shift, the government has decided that salary sacrifice and deductions schemes will (in certain circumstances) no longer be subject to financial penalties if the scheme brings payment below the NMW rate (which can be up to 200% of arrears). 
 
Under the previous regime, a number of high profile employers were found to have breached the NMW rules due salary sacrifice and deduction schemes, such as "Christmas Clubs", a savings plan which deducted sums from participating employees’ wages and paid back to them at a later date.  Similarly, Stoke City Football Club was found to be in breach of the NMW rules for allowing its staff to pay for tickets and merchandise by way of deduction from their monthly salaries. The changes will relax the salary sacrifice rules, so that employers with benefit schemes where staff buy products from their employer and pay for these via salary deductions are no longer penalised. However, the waiver will be subject to strict criteria – including that the worker has opted into the scheme. Deductions of NMW for uniform and other items connected with the worker’s employment will continue to be penalised.
 
Whilst these changes include some positives, where compliance with NMW is at the forefront of the government's rationale for the changes, it feels that an opportunity has been missed to encourage greater levels of compliance. For example, increased flexibility on the application of penalties based on the underlying reasons for underpayment, the levels of cooperation with HMRC, or immunity where employers voluntarily seek HMRC advice or make disclosures of potential underpayments may have also acted to encourage some employers to have voluntary, transparent, discussions with HMRC without fear of financial penalty. At present, the system remains heavily weighted to penalise employers who fail to comply, with little incentive for employers to raise their heads above the parapet.
 
These changes present both risks and opportunities – in particular the changes to salary sacrifice and benefits schemes now available to employers again. We have assisted numerous large and multinational employers across a variety of scenarios which can give rise to NMW discrepancies and in developing pay structures with employers. Our experience includes carrying out significant audits, on the ground support with HMRC investigations and strategic planning.
 
If you would like to discuss any concerns you may have with NMW, or to explore ways of reviewing your pay structures, we would love to speak with you.

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