National Minimum Wage

National Minimum Wage
4.83 In its evidence, the Government detailed how it has been implementing its new strategy,
including HMRC moving towards a more risk-based approach to enforcement, and developing
and adopting new ways of working. The move to allocating resources to risk enables HMRC
to focus its effort on where it can have maximum impact, but it has also put other processes
in place to ensure all complaints are dealt with, albeit without necessarily triggering a full
investigation. The Government said a number of changes were not put into effect until the
latter part of the year, so it was too early to evaluate their impact.
4.84 We fully support the Government’s aim and actions under the compliance strategy. We are
pleased to see it is developing its enforcement action, maximising the use of its resources
and placing a greater emphasis on intelligence and risk. We will continue to monitor progress.
Fair Arrears and Penalties
4.85 A regime of fair arrears and penalties was introduced under the Employment Act 2008 and
enacted in April 2009. These provisions meant that workers not paid the minimum wage
would receive arrears at the current rate and that employers who have not paid the minimum
wage would pay a fine of half of the amount of arrears identified (up to £5,000). The new
regime has now been in place for over two years and statistics produced by the Government
show that in the last financial year (2010/11) penalties were imposed in 937 cases totalling
just over £560,000.
4.86 Research undertaken by BIS (2011d) on employers’ attitudes towards compliance with the
minimum wage found that those who expressed a view accepted that a mechanism was
needed to ensure workers were not out of pocket. There were diverging views on whether
arrears should be paid at the current rate and also on whether there should be a financial
penalty. A number felt it was unfair to penalise employers that had made a genuine mistake.
NHF told us there should be more of a carrot rather than a stick approach to enforcement,
one based on support, advice and encouragement to businesses to get it right.
4.87 On the other hand, the view has been expressed to us that the £5,000 penalty limit is not
high enough, especially where there are substantial amounts of arrears due. We share the
concern that £5,000 is not a sufficient penalty in every instance. A higher penalty, which may
require the use of the criminal law, will be necessary in some cases. It is very important that
the correct balance is struck between the use of civil penalties and criminal sanctions and as
we report later on, we do not believe this is yet the case. The Government has advised that
existing enforcement powers and penalties are included in the ongoing review it is
undertaking into enforcement of workplace rights.
4.88 In 2010, the Government said it was considering when would be an appropriate time
to undertake a full review of the fair arrears and penalties regime. We have previously
commented that changes should only be made after a full review, and in our 2011 Report
we said that we thought the time was right to review the provisions within the next twelve
months. Given that the provisions have now been in force for nearly three years; research
on compliance has recently been undertaken covering these provisions; and the
Government is currently reviewing the enforcement of workplace rights, we strongly
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