Minimum wage: Don’t get caught out

Government consultation on Labour Market Enforcement strategy for 2020/2021 is open until 24 January 2020.  At the same time, a report by the Resolution Foundation released this month shows that, as legal minimum wage rates have risen, so has non-compliance.

Based on survey data collected by the Office for National Statistics, it is estimated that of the of the 1.4 million workers aged 25 and over in Great Britain paid at or very close to the wage floor in 2019, more than 25% were unlawfully underpaid.

The report makes the case that more active enforcement by the state agencies with such powers would be the most effective deterrent to unlawful underpayment. The report also points out that there is no clear dividing line between inadvertent and deliberate underpayment. However, both are equally unlawful and, where enforcement action is taken, will result in orders to pay the shortfall and fines of up to 200%.

One problem for businesses who have no intention of failing to comply with minimum wage law is that the law is highly complex, so it is often difficult to calculate what constitutes a lawful deduction or what offsets are allowed. This means there is plenty of scope for employers to simply get things wrong.

Many businesses also fall foul of minimum wage law because it only considers pay received in each pay period and does not take into account whether aggregate pay over a longer period would be above the legal minimum. For example, if an employee’s pay is at the legal minimum wage rate for their age, a £50 deduction in March for uniform would be in breach of minimum wage law even if the employee had received an annual bonus of £1000 in January.

In our view, removing anomalous outcomes like this as part of making minimum wage law more straightforward would result in more employees receiving their legal entitlements. The current consultation gives businesses the opportunity to make representations of this kind to the government.

With the significant rises to the legal minimum pay rates coming into effect from 6 April 2020, it is all the more important that businesses get this right. For advice on minimum wage compliance and enforcement, please contact our employment team.