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Enforcing the National Minimum Wage

Since the 6th April 2009 employers have faced stiffer penalties for failing to pay workers the National Minimum Wage.

The changes, brought about by the Employment Act 2008 (the Act), gives HM Revenue & Customs (HMRC) a number of new powers.

  • HMRC have new powers of inspection for businesses that fail to comply with paying their workers the National Minimum Wage.
  • HMRC can enforce penalty payments for employers that fail to pay the National Minimum Wage.
  • Workers are entitled to have their wage arrears paid at current Minimum Wage rates.

Penalties for Employers who fail to pay the National Minimum Wage

If HMRC finds an underpayment of the national minimum wage in any investigation that continues through or has been brought since the 6th April 2009 they can issue a "notice of underpayment". Under a notice of underpayment the employer is required to repay arrears to the workers and they may be required to pay a financial penalty to the Secretary of State. Employers have the right to appeal against a notice of underpayment to an Employment Tribunal (or an Industrial Tribunal in Northern Ireland).

Employers are only liable to pay the arrears, at current minimum wage rates, of underpayments from the 6th April 2009. There are no penalties for underpayments occuring before the 6th April 2009.

Penalties are set at 50% of the total underpayment, however, the minimum penalty is £100. The maximum penalty is £5000.

Employers who comply within 14 days of the serving of the notice of underpayment do receive a discount of 50% on the penalty.

Calculating National Minimum Wage Arrears.

There is a new methodology for calculating national minimum wage arrears.

Workers owed national minimum wage arrears from or after the 6th April 2006 are entitled to have arrears paid at the current rate. This is to compensate workers that have have had to wait for their arrears payments.

The arrears must be calculated according to a formula which is set out in the Act and this change applies retrospectively (i.e. from 6 April 2009, workers will be entitled to have their arrears repaid at current rates for all periods that they have been underpaid, including periods prior to 6 April 2009). The formula only applies if the current rate is higher than the rate or rates that applied at the time the worker was underpaid.

New Powers of Inspection & Criminal Regime for Minimum Wage Offences

HMRC compliance officers have the power to search and seize national minimum wage records from an employer’s premises for the purposes of copying them as evidence under the Police & Criminal Evidence Act 1984 whilst investigating criminal offences under the National Minimum Wage Act 1998.

The most serious breaches of the National Minimum Wage Act 1998 where employers deliberately fail to pay the National Minimum Wage will result in employers being taken to Crown Court. Penalties resulting from Crown Court prosecutions are likely to be stiffer than the minimum & maximum penalties from simple underpayment that would be charged by HMRC.

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