10427 The Retailer Autumn 2018_Final Draft Pages

National Minimum Wage Enforcement - Call for Evidence

Fiona Campbell Associate Squire Patton Boggs

DIRECTOR OF LABOUR MARKET ENFORCEMENT RECEIVES FEEDBACK ON HMRC ENFORCEMENT OF THE NATIONAL MINIMUM WAGE DURING CALL FOR EVIDENCE. The retail sector has been amongst the hardest hit withHMRC’s proactive enforcement of theNational MinimumWage (NMW) Regulations in recent years. Many businesses in the sector have been “named and shamed” for failing to pay the ever-increasingNMWrate. News headlines may indicate that the key to compliance is the rate of pay. However, compliance is sadly not that easy andmany businesses have been found to be in breach unknowingly due toworking practices that affect the number of hours deemed to beworked for NMWpurposes (see below). Apart from reputational damage, the financial consequences of being in breach are severe. HMRC can require underpayments to bemade to current and former employees going back up to 6 years. Penaltiesmay also be issued of up to 200%of the total underpayment to all workers (subject to a £20,000 cap per employee). Why the apparent increase in NMW offenders? Sir David Metcalf was appointed as the Director of Labour Market Enforcement in January 2017. He has overarching responsibility for the strategic direction of HMRC in respect of their enforcement of the NMW. Since his appointment, the annual budget assigned to HMRC for enforcement of the NMW has significantly increased and currently sits at £25.3 million. Sir David released his first Labour Market Enforcement Strategy in May 2018 for enforcement during 2018/19. Amongst the headlines were proposals to increase significantly civil penalties for non-compliance and for joint responsibility for non-compliance In June this year, Sir David launched a Call for Evidence to inform his strategy for 2019/20. In particular, he announced that he would explore sector-specific enforcement issues and meet with stakeholders to hear their views. We hosted an event with Sir David on 13 September 2018 which was attended by a number of businesses, including within the retail sector. Having supported a number of clients both in within a supply chain. Call for Evidence

ongoing HMRC audits and in undertaking their own NMW audits to identify areas of risk, we have seen first-hand the issues faced by businesses subject to enforcement. In particular for the retail sector, these are: • Work uniform – if an employee has to supply their own uniform (or any part of them), then the cost of purchasing should be deducted from their pay when calculating NMW. If, for example, you provide a branded T-shirt, but your employee has to provide their own black trousers and shoes, the cost of these will be considered a deduction for NMW purposes, which means the employee must receive the NMW after that deduction. • Working time – this is not as simple as the time an employee spends on shift doing their job. Additional activities can count toward working hours. If an employee has to go through any checks or undertake any mandatory steps before they can start or leave work such as security searches, team briefings, getting changes on site or drug and alcohol tests, then the time spent going through these processes will also be working time. • Salary Sacrifice – HMRC’s approach to salary sacrifice arrangements has been that where an employee is a member of a salary sacrifice scheme (such as for pension, childcare vouchers, etc.), then they must receive the NMW after the salary sacrifice is accounted for. We are aware of employers that have seen no alternative but to remove salary sacrifice schemes from NMW workers and instead to make deductions from pay, thus depriving the NMW worker of the tax benefit of salary sacrifice. • Annualised hours contracts – these are referred to in the NMW Regulations as “salaried hours contracts”. The NMW Regulations require that the annual number of hours to be worked under such contracts is “ascertainable”. However, HMRC have taken the approach that where a contract refers to a weekly (rather than monthly or annual) number of hours, the worker cannot be a salaried hours worker. This is on the basis that, technically speaking, there are 52.14 weeks per year and HMRC say that therefore the exact yearly number of hours in such contracts are not ascertainable.

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