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National Minimum Wage - naming and shaming is back but more flexibility on salary sacrifice

National Minimum Wage naming and shaming is back

The government has resumed the naming and shaming regime, but will introduce a series of changes to make compliance easier for employers.

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Matthew Hunnybun

Partner

KPMG in the UK

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Employers who do not pay their workers National Minimum Wage (NMW) will be publically named and shamed, albeit in future this will apply to arrears of £500 or more.

In addition, changes to the NMW regulations will adapt the rules on salaried work and salary sacrifice arrangements, which historically have created compliance challenges for employers.

Which employers will be named and shamed?

The naming and shaming regime, suspended since July 2018, will resume in a bid to deter NMW non-compliance.

The threshold has risen so that employers who owe £500 of arrears will be named. Previously, the threshold was £100, which will still apply when an employer has been found liable for an NMW breach in the preceding 6 years. Businesses who underpay by less than £500 will still have to pay back workers and the associated fines. The updated enforcement guidance also provides further background on when HMRC may consider permitting self-correction in general.

In addition, the government will provide more information on causes of breaches, publish an educational bulletin for employers highlighting common reasons for underpayment, and name employers more frequently.

An employer will be referred to the Department for Business, Energy and Industrial Strategy (BEIS) for naming immediately upon commencing recovery action if no appeal has been made and an employer fails to pay - and not, as previously, when the court or tribunal action is complete. Where an employer is referred to BEIS, the guidance now confirms that any public interest argument the employer should not be named will be considered very restrictively.

What are the proposed changes for salaried work?

In December 2018 BEIS launched a consultation on the NMW rules in relation to salaried workers and salary sacrifice schemes. It asked for input from employers on areas where they felt NMW rules ’unfairly penalise them without generating any benefit or protection for workers’.

The government announced on 10 February that it wants to give employers more flexibility in how they administer pay for salaried hours work, and has confirmed it will:

  • Permit additional payment cycles for salaried workers, including fortnightly and 4-weekly cycles;
  • Allow employers to choose the ‘calculation year’ appropriate for their workers; and
  • Ensure salaried workers can receive premium pay, for example for working on Bank Holidays, without losing their entitlement to equal and regular pay instalments.

These changes are expected to come into force on 6 April 2020.

What are the changes to salary sacrifice?

Employers offering certain schemes, including salary sacrifice, savings clubs and deductions to purchase goods and services (Permitted Deductions), will no longer be subject to financial penalties or naming if the scheme brings payment below the NMW rate provided it meets certain criteria, including:

  • That the entire underpayment for that worker was due to a Permitted Deduction which was not a requirement of the employer and in the case of savings schemes will be repaid to the employee;
  • It does not relate to the worker’s expenditure under regulation 13 or living accommodation under regulation 14 (meaning deductions for uniforms and other items connected with the worker’s employment will continue to be penalised as normal);
  • That the worker has consented to the Permitted Deduction;
  • The worker receives the goods, services or benefits to which they are entitled or repayment of their savings; and
  • The employer has not previously been found liable for certain offences or breaches of NMW law.

New guidance to support employers

Whilst enforcement continues to be important, the government wants to support employers to pay workers correctly in the first instance and will:

  • Make NMW guidance more accessible and easier to navigate, with guides on specific compliance issues;
  • Proactively educate and support new small businesses on NMW compliance; and
  • Provide more helpline support for employers who operate deduction or salary sacrifice schemes.

The new penalties regime applies to Notices of Underpayment (NoU) issued after 11 February 2020 (even where the investigation commenced before this date). However the new naming scheme applies from 11 February even where the NoU was issued before that date.

Please contact Matthew Hunnybun, Partner and Head of People Services, KPMG in the UK, Colin Ben-Nathan, Director, KPMG in the UK, Donna Sharp, Director and Solicitor, Employment Legal Services, KPMG in the UK or email employersclub@kpmg.co.uk if you’d like to discuss how KPMG can help your organisation with NMW compliance.

© 2020 KPMG LLP, a UK limited liability partnership, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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