Legal advice: Revenue cracks down on firms dodging NMW

On October 1, 2006, it was estimated that some 1.3 million workers (many of whom work in the licensed trade) would receive a pay rise as a result of an increase in the national minimum wage (NMW). Minimum pay rates as a result of this legislation, rose to £5.35 (from £5.05) for the over-21s, to £4.45 (from £4.25) for the 18 to 21s and to £3.30 (from £3.00) for 16 and 17-year-olds.

Of course, from a worker's point of view a pay rise is always welcome. But what is the view of the work providers?

The Confederation of British Industry has warned that retail companies are struggling to meet the demands of the minimum wage and are having to consider reducing staff hours or job losses.

And there is some evidence to show that the increases mean that employers are ever more likely to use migrant labour who will work for less. Indeed, Home Office figures reveal that 78 per cent of Eastern European-registered workers earn less than £6 per hour while only 20 per cent of all British workers earn less than that amount.

The growing use of migrant labour is seen as a major challenge to the effective working of the minimum wage. But this practice may not be set to continue for long as the Low Pay Commission (an independent statutory non-departmental public body set up to advise the government about the NMW), which has an ongoing remit to monitor the impact of the minimum wage, is determined to tighten up on enforcement. This is in order to ensure that the benefits of the NMW continue. Such benefits include reassurance that there is no undercutting and forcing competitors to compete on productivity rather than on the price of labour.

Enforcement

Her Majesty's Revenue and Customs (HMRC) is responsible for enforcement of the NMW legislation and to that end employs a compliance team. There are five key areas to its work:

• Responding to all complaints from workers and third parties referred by a confidential helpline, that the minimum wage has not been paid
• Carrying out inspections of employer's/work employers' records to check employers are meeting their obligations to pay the minimum wage
• Helping employers understand their obligations under minimum wage law
• Securing pay arrears
• Presenting cases to employment tribunals on behalf of workers.

Excuses for non-payment

Since the introduction of the minimum wage HMRC compliance officers have identified more than £21m in pay arrears for workers. According to HMRC, excuses for failing to pay the NMW include:

• I only took him on as a favour
• the workers can't speak English
• he's over 65 so the NMW doesn't apply
• she's on benefits so if you add those to her pay she gets more than the NMW
• he can't cope on his own and besides it's more than he would get in his own country
• he's disabled
• I didn't think it applied to small employers
• I didn't think he was worth more
• she only wanted £3 an hour
• he doesn't deserve it, he's a total waste of space.

The future of the NMW

The government has recently consulted on proposed guidance on the accommodation offset provisions of the NMW legislation. If an employer provides accommodation then this can count towards NMW pay.

Finally, in its annual submission to the Low Pay Commission, the TUC has recommended that the adult minimum wage should be raised to more than £6 per hour by October 2008. The TUC has requested the commission to ignore what it considers to be 'unjustified' employer calls for a rate freeze. Whether or not those calls will be heeded remains to be seen.

• Paul Cotton is a partner at Eversheds LLP. Its world wide associate offices have over 2,000 legal and business advisers providing services to the private and public sector business and finance community. Its HR practice group provides strategic and practical advice on all areas of employment and pensions law. www.eversheds.com​