There have been a number of recent high profile examples of household name employers announcing potential failures in their compliance with complex National Minimum Wage (NMW) laws. In the most talked about of these, the number reported was valued at around £36 million. Many of these businesses are headquartered in London, with significant operations in the capital.
The current maximum rate of NMW is £7.50, well below what the Living Wage Foundation calculate to be the living wage in London (£9.75). That gap means that London employers are likely to be placed under even closer scrutiny by their employees that those outside the capital where the cost of living is lower and the gap between it and the NMW less pronounced.
NMW is enforced by HMRC on behalf of the government. Recently, HMRC has had its budget for enforcement increased significantly and has seen the size of its NMW enforcement team grow by almost 400%. At the same time, NMW rates for those over 25 have risen much faster than real wage inflation, bringing more and more businesses within touching distance of being National Minimum Wage employers. The Low Pay Commission which is responsible for advising the government on the NMW, anticipates that as many as 580,000 workers per year suffer an underpayment at some point. The LPC also believes that those in receipt of a "salary", rather than being paid by the hour, make up 44% of all NMW failures.
The Bank of England has noted recently that wage growth remains sluggish, currently running at an annual rate of 2.1% and behind inflation which was 2.9% in the 12 months to August 2017. Real wages are likely to continue to lag behind inflation, but the government continues to target an NMW rate of over £9.00 per hour, with the current headline rate of £7.50 likely to increase to above or close to £8.00 in April 2018. This perfect storm means that more and more medium and large employers will need to consider their NMW compliance as a matter of urgency.
The legislation which underpins the NMW is difficult to apply with certainty and counter intuitive, meaning the risk of technical failure is high. Few employers intend to pay less than NMW, but many find themselves doing so because of practices such as pay averaging and salary sacrifice, with failures to accurately record all time worked by employees also contributing significantly to the problem.