The minimum wage: explained

Karen Hostick, specialist employment lawyer at Kingsley Napley, explains all regarding the minimum wage

The National Minimum Wage Act 1998 entitles nearly all UK employees to receive the national minimum wage (NMW), which was intended to protect vulnerable employees, who are likely to be exploited, from rogue employers.

Overall, that aim has been achieved, but there is increasing evidence of persistent failure by certain employers to pay the NMW, despite the current ‘adult’ rate being at £5.35, not an excessive amount.

To combat this, the government has strengthened enforcement measures by introducing more stringent penalties.

HMRC enforces NMW legislation by way of 16 enforcement teams, whose officers have a right of entry to premises, to inspect records and demand explanations from employers. HMRC receives information from employees by way of written complaints or the HMRC Helpline.

If HMRC finds that wages are illegally low, an enforcement notice is issued ordering the employer to make payment in arrears to the worker. Failure to comply leads to a seven-day penalty notice. If the employer fails to comply, HMRC may issue proceedings in the Employment Tribunal to recover arrears on the employee’s behalf. Of course, employees can themselves commence Tribunal proceedings if they are in receipt of less than the NMW. Employees who so act are protected from being subject to a detriment or being unfairly dismissed by their employer.

An employer who fails to comply with enforcement and penalty notices may also face criminal proceedings. If guilty, punishment is a maximum fine of £5,000 and a criminal record. Not only that, officers of a body corporate who are implicated in failing to pay the NMW (by way of “consent, connivance or neglect”) will also face criminal charges. This tougher stance must be the correct approach for employers that knowingly breach the law, particularly when reference is made to an employee’s ethnicity, disability or the low hourly rate of pay requested by the (ill-informed) employee as a justification for paying less than the NMW.

Despite the obvious benefit of the NMW, there is some concern as to the balance between providing a fair hourly rate and minimising business costs. Some groups believe that the NMW, where the annual increase is often above the rate of inflation, is detrimental for small businesses and may lead to job losses. Others suggest that the adverse impact of the NMW could be minimised if it was geographically specific, rather than being nationwide, and that this is necessary if the UK’s competitiveness in the smaller business market is not to be damaged further.