Enforcement of the NMW – a fair sport?

Earlier this month, the newly re-named Department for Business, Energy & Industrial Strategy (BEIS, formerly BIS) named & shamed another batch of 197 NMW rogues. With six months having passed since the last batch, in early February, BEIS was able to hype this one as “the largest ever list of NMW offenders”, but the length of the list merely served to highlight the relatively small sums owed by all but a handful of the 197, who between them owed a combined total of £465,290 in NMW arrears to 2,166 workers.

Among the usual mix of hairdressers/beauty salons (27), bars, restaurants, cafes and hotels (25), car dealers/motor garages (15), and childcare providers (12), only 85 employers owed more than £1,000 of arrears, and 131 (66%) had underpaid only one worker. The median sum owed was just £759.32, 80 employers owed less than £500 of arrears in total, and only 12 had underpaid more than 25 workers. The four ‘worst’ offenders – including the high-end San Lorenzo Wimbledon restaurant and the Regis chain of hair & beauty salons – accounted for 37% of the total arrears owed, and for 49% of the 2,166 unpaid workers.

Indeed, perhaps the most newsworthy aspect of the list – overlooked by most if not all journalists, as far as I can tell – is that it included no fewer than 24 social care employers, ten more than BIS had managed to include among the 490 NMW rogues named & shamed in all previous batches since the re-booting of the scheme in October 2013. However, most of the 24 appear to be small fry, with 15 having underpaid fewer than four workers and 18 owing less than £2,500 in total. But at least ‘social care’ – a sector in respect of which HMRC has long appeared to have a bit of a blind spot – has moved a little towards the left of this updated ‘chart of the meanies, by sector’.

NMWnamingsectorsAug16

With the re-booted scheme in force for almost three years now, and almost 700 NMW-breaching employers named & shamed, it is also interesting – well, it is if you’re a nerd like me – to look at breakdowns by sector of (a) the arrears owed, and (b) the number of workers to whom arrears were owed. NB: for the following ‘arrears owed’ chart, I have excluded the extraordinary sum of £1,742,655.56 owed by security firm TSS Ltd, and for the ‘workers covered’ chart I have excluded both the 2,519 TSS Ltd security workers and the 2,895 hospitality workers to whom the Arta bar/club/restaurant in Glasgow somehow managed to underpay a total sum of £45,124.00 (an average of just £15.59 per worker).

NMWarrears

 

NMWworkers

However, even with the exclusion of the TSS Ltd security workers and the Arta hospitality workers, the ‘workers covered’ chart paints a slightly false picture. For example, all but 125 of the 3,071 retail workers were employed by four NMW-breaching retailers: Monsoon Accessorize (1,438 workers), Foot Locker (601), H&M (540), and French Connection UK (367). Of the other 65 retail sector employers, 48 (74 per cent) owed arrears to just one worker, and all but six owed arrears to fewer than five workers. Similarly, 604 of the 818 hairdresser/beauty salon workers were employed by one employer: the national chain Regis UK Ltd. And, of the other 118 hairdressers/beauty salons, 73 (62 per cent) owed arrears to just one worker, and a further 28 (24 per cent) owed arrears to just two workers.

Between them, those 118 hairdressers/beauty salons owed total arrears of £226,831.77 to 214 workers (an average of £1,060 to each worker). And, on average, each of those 118 mostly small, low-profitability businesses owed total arrears of £1,922. Which means that, roughly speaking, each would also have been required to pay, in addition to those arrears, a financial penalty to HM Government of £1,922 (see sections 3.7 and 3.8 of this July 2016 explanation of NMW enforcement policy). The 92 NMW-breaching employers named & shamed in February, for example, were required to pay a combined total of “over £629,000” in financial penalties (some £6,800 each, on average, but note that the 92 included the above-mentioned TSS Ltd and their arrears of £1.74 million).

OK, a penalty of some £2,000 might not sound very much, but £2,000 is in fact a not insignificant sum to a small business such as a local hairdresser/beauty salon (even if the penalty is discounted by 50 per cent for prompt payment, i.e. within 14 days).

So, if I was the owner/manager of one of those 118 small businesses, I might well be wondering whether the highly profitable Sports Direct is going to be required to pay a financial penalty of some £1 million after striking an apparent deal with HMRC and the union Unite to pay some £1 million of NMW arrears to “thousands” of its warehouse workers. (The current penalty rate is 200 per cent of the total arrears owed, but that only applies to underpayments made since 1 April this year. For underpayments made between 7 March 2014 and 1 April 2016, the penalty rate is 100 per cent, and for underpayments made prior to 7 March 2014 it is 50 per cent).

As the Guardian’s economics editor, Larry Elliott, noted on the day the story broke:

“There appears to be no reason for clemency. The government seems quite happy to name and shame little known companies for relatively modest sums, and this was no minor infraction. Sports Direct’s flouting of minimum wage legislation had been going on for four years” … and … “Sports Direct is a prime example of how companies can use employment agencies to avoid giving what are effectively full-time staff members the rights which they are legally due. Employees are too frightened to make a fuss for fear that they will not get any more work.”

Time will tell, but – as noted previously on this blog – HMRC does appear to have quietly introduced a questionable practice of allowing some NMW-breaching employers to ‘self-correct’ and pay the arrears owed without being issued with a Notice of Underpayment, thereby evading both naming & shaming, and – more importantly – the imposition of a financial penalty.

In 2015/16, according to the answers given by BIS (now BEIS) to a series of parliamentary questions, 60 employers took advantage of an effective amnesty (announced in July 2015) to “voluntarily disclose [total] arrears of £786,038 owed to 4,869 workers”, without being issued with a financial penalty or named & shamed, and a further 85 employers were able to ‘self-correct’, also without being issued with a Notice of Underpayment, so were not issued with a financial penalty and will not be named & shamed. And BIS/BEIS seems reluctant to say how much was owed by those 85 employers, and to how many workers – a parliamentary question tabled on 3 June has gone unanswered, despite a chasing question.

Yet, over the year, the total arrears ‘recovered’ by HMRC leapt from an average of £3.9m in previous years, to a remarkable £10.3m. The suspicion has to be that those 85 unnamed, non-shamed and, most importantly, financial penalty-evading NMW rogues were responsible for much of that otherwise astonishing increase.

Is Sports Direct also being allowed to ‘self-correct’, and so evade a financial penalty of some £1 million? We should be told.

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About wonkypolicywonk

@wonkypolicywonk is a policy minion who has been lucky enough to work at Maternity Action, Working Families, Citizens Advice, the National Audit Office, the Law Society, and Amnesty International UK. He currently bangs his head on a desk in Parliament.
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