UK: Compliance with the national minimum wage

A recent government clampdown has seen international retailers feature prominently on lists of employers being “namedand shamed,” with numerous household names suffering substantial fines due to breaches of their National MinimumWage (NMW) obligations.The UK has seen record enforcement action of the NMW in 2018, with the Government identifying £15.6 million ofunderpayments and issuing an unprecedented £14 million in fines. With fines of up to 200 percent of underpayments,the reputational damage caused by naming and shaming and even the possibility of criminal sanctions, the implications ofnon-compliance are significant. The Government is increasingly resourced to enforce NMW obligations and appears to befocusing its investigatory efforts on the retail sector.

NMW in the UK

NMW in the UK currently stands at £7.83 per hour forworkers over age 25, and the Government intends for thisto reach £9 by 2020. There are currently five differentrates of NMW that are applicable depending upon anindividual’s age, and these are not just applicable toemployees but also to the wider category of workers.Employers often assume that if they pay this headline rate,they are compliant. The regulations, however, are muchmore complicated, and even the smallest mistake can leadto consequences. Importantly, underpayment is a strictliability violation, meaning that sanctions may be appliedto accidental and inadvertent breaches just as seriously asintentional or knowing breaches.

Breaches by retailers

The complexity of the legislation has led to numeroushigh-profile retailers finding themselves in breach of theirNMW obligations. Retailers are particularly susceptible tobreaching NMW requirements because the industry reliessignificantly on workers paid at, or just above, the NMW.

We have seen retailers fall short of their obligations dueto incorrect treatment of working time including breaks,pre-shift meetings and overtime. Perhaps most notoriously,breaches have arisen where retailers have failed toproperly factor uniform costs into wage calculations.For example, requiring employees to purchase a specificuniform should not cause their wage to fall below theNMW. Retailers are often unaware that even prescriptivedress codes, such as requiring employees to wear all black,can bring an individual’s wage below the prescribed rate.

Recommendations

The intricacies of the NMW requirements and thedamaging consequences of non-compliance meanthat retailers must ensure awareness of the specificrequirements of NMW legislation. In light of theGovernment’s recent focus on enforcement, employersshould audit their pay processes and, if this raises anyconcerns, seek appropriate legal advice.