Tackling employers who fail to pay the National Minimum Wage

29 January 2007

The Government announces new system of enforcement.

On 8 January 2007, the Government announced new measures to financially penalise employers who do not comply with an enforcement notice. It is hoped that the issue of a penalty notice will encourage employers to comply with enforcement notices and in doing so persuade employers to pay arrears to workers and deter employers from failing to pay the national minimum wage (“NMW”) in the future.

Penalty notices

Penalty notices will generally be issued when the enforcement notice has not been complied with in full by the end of an appeal period. The most serious cases of non-compliance with national minimum wage legislation may be prosecuted criminally.
The penalty formula is contained in statute as “twice the hourly amount of the NMW in force at the date of the penalty notice in respect of each worker to whom the failure to comply relates for each day during which the failure to comply has continued in respect of the worker”.

The enforcement process

An enforcement notice specifies that the employer must pay the arrears on the enforcement notice within 7 days of the date of service of the notice. An employer has four weeks to appeal the enforcement notice. At the end of the appeal period, HMRC will check to see that any workers named in the enforcement notice have been paid their arrears in full.

A penalty notice will be issued to employers who remain non-compliant at the end of the appeal period. The minimum penalty of £224.70 applies where the employer has only defaulted in respect of one employee named on the enforcement notice. Where an employer has, say, 15 employees who have not been paid the NMW, a penalty of £3,370.50 will be imposed, in addition to having to make good the amount of the underpayment to the individual employee.

HMRC can also issue proceedings in any civil court to recover the arrears for workers outlined in the enforcement notice, separate to any penalty action.

If you would like further information on the effect of these new provisions please contact Guy Abbiss, Tracey Horne or Colin Kendon.