Employer caught out by National Minimum Wage requirements
The recent high-profile failure by Sports Direct to pay all of its staff the applicable National Minimum Wage (NMW) highlighted the importance of companies understanding their NMW obligations.
In March 2016 we alerted our readers to the new NMW rates and the increased penalties for underpayment (which rose from 100% to 200% of the total underpayment, capped at £20,000 per worker). You can read the full article here.
NMW and Working Time
An individual is entitled to receive the applicable NMW for his/her working time. If an individual is paid by the hour, in addition to all time that he/she is at work and required to work, working time can include time spent:
- travelling on business;
- on-call or standby (subject to certain conditions and exceptions); and
However, for such individuals, working time does not include:
- travel from home to work;
- rest breaks (such as a recognised lunch hour); and
- other time away from work (such as holidays, sick leave, statutory family friendly leave and industrial action).
In June 2016 Mike Ashley, owner of Sports Direct, admitted that some of the company’s staff had received below the applicable NMW and said that the matter was being investigated by HMRC. It has been claimed that the breaches went as far back as 2012 and could be as much as £1,000 for some workers.
On the face of it Sports Direct paid its staff the required NMW. However, the actual hourly rates received by workers were reduced below the NWW because:
- Sports Direct required its staff to go through searches at the end of each shift, for which their time was unpaid; and
- strict deductions were applied to wages if an individual was late for a shift.
Earlier this month, following an internal report, Sports Direct stated it had increased the hourly rate of individuals it employs directly to ensure they receive the NMW.
In addition to the penalties and claims an employer may face for breaching its NMW obligations, even if a company is not as large as Sports Direct, there is the associated negative publicity.
Under a scheme introduced in October 2013 the government publishes a “name and shame” list of employers who fail to pay their workers the full NMW. Since the scheme’s inception 687 employers have been named, with total arrears of more than £3.5 million.
The Sports Direct matter shows the importance of employers regularly monitoring that their employees are receiving the correct NMW. This requires understanding an employee’s working time and their age (different rates apply depending on an individual’s age). It is advisable for employers to put in place systems to ensure employees receive at least the applicable hourly rate.
Also, an increase in hourly rates could impact on other costs, such as pension and national insurance contributions.