From 6 April 2009 employers will face a penalty if HM Revenue & Customs (HMRC) discover they have failed to pay the national minimum wage and workers will be entitled to have arrears of wages repaid at current rates. These changes were brought in by the Employment Act 2008 (the Act). The Act also gives HMRC compliance officers new inspection powers and strengthens the criminal regime for national minimum wage offences.
If HMRC find that there has been an underpayment of the national minimum wage in an investigation that is ongoing from 6 April 2009 they may issue a notice of underpayment requiring the employer to repay arrears to the workers and to pay a financial penalty to the Secretary of State. Employers will be able to appeal against the notice of underpayment to the Employment Tribunal (an Industrial Tribunal in Northern Ireland).
The penalty will only be charged in respect of underpayments of the national minimum wage occurring in pay reference periods starting on or after 6 April 2009 (i.e. there will be no penalty in respect of underpayments occurring before this date).
The penalty is set at 50 per cent of the total underpayment (for periods starting on or after 6 April 2009) but there is a minimum penalty of £100 and a maximum penalty of £5,000. Employers who comply fully with the notice of underpayment within 14 days of service will receive a discount of 50 per cent on the penalty.
Workers who are owed arrears of the national minimum wage for pay reference periods starting on or after 6 April 2009 will be entitled to have their arrears repaid at current rates where these are higher than the rate or rates that applied when the arrears arose. The increase to current national minimum wage rates takes account of the length of time that the arrears have been outstanding (i.e. it compensates workers who have had to wait for their arrears).
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.
Compliance officers will be able to remove national minimum wage records from an employer’s premises for photocopying. The compliance officer will be entitled to remove complete records but must return them within a reasonable period.
The Act gives HMRC the power to use the search and seize powers in the Police and Criminal Evidence Act 1984 when investigating criminal offences under the National Minimum Wage Act 1998.
The Act also makes changes to the way that criminal offences under the National Minimum Wage Act 1998 are investigated and enforced: in particular, with effect from 6 April 2009, the most serious cases will be triable in the Crown Court. This means that employers who deliberately fail to pay the minimum wage may face stiffer penalties.