National Minimum Wage Prosecution
Originally sent: September 28, 2007"So tell me, Mrs. Smith," asked the interviewer, "have you any other skills you think might be worth mentioning?"
"Actually, yes," said the applicant modestly. "Last year I had two short stories published in national magazines, and I finished my novel."
"Very impressive," he commented, "but I was thinking of skills you could apply during office hours."
Mrs. Smith explained brightly, "Oh, that was during office hours."
You may have noticed a recent announcement that Revenue & Customs Prosecution Office have just completed their first criminal prosecution under the National Minimum Wage Act. The employee concerned was not Mrs Smith, although if she had been perhaps her employer could have been forgiven for paying her under the Minimum Wage. Mrs Teresa Aguda, a children’s nursery owner, was fined £2,500 and £500 costs on 28th August 2007 for obstructing HM Revenue & Customs officers from accessing staff records to establish whether her staff were receiving at least the Minimum Wage.
The National Minimum Wage Act has now been with us for over eight years. You may be a little surprised to hear, therefore, that in all that time there has not been a single criminal prosecution under the Act until now. The reason for this is that Revenue & Customs usually only pursue criminal cases in the most extreme circumstances or where they wish to make a public example. There have been many penalties levied in those eight years where no criminal action has actually been taken.
The National Minimum Wage is not something to be taken lightly. Under the Act you can be fined up to £5,000 plus costs for each infringement, together with acquiring a criminal record. This applies not only to actual breaches of the Minimum Wage, but also to failure to keep or preserve the records which are necessary to demonstrate you are not in breach, and even (as in the case of Mrs Aguda) to obstructing or delaying Revenue & Customs officers investigating possible breaches.
Perhaps at this point you are thinking none of this is relevant to you. That you value your staff and would not dream of paying them only the Minimum Wage, let alone below it. Very commendable. But even so, you could still inadvertently find yourself in breach.
When it comes to ordinary salaried or waged staff it is quite straightforward. There is a minimum amount per hour you must pay – either you are paying at least that or you are not. Simple.
The difficulty comes when you do not simply pay an hourly, weekly or monthly rate. Many of us reward our staff by paying them by result. It may be that you have sales staff who are paid commission on their sales. Or perhaps you pay homeworkers for trivial tasks such as stuffing envelopes and simply pay them so much per envelope stuffed.
In the good old days it was often pretty much irrelevant to the employer how long it took the employee to achieve the result – all that counted at the end of the day was the number of sales made or the number of envelopes stuffed. Those who were really good at their job may have been very highly paid if you looked at how much they received per hour, and those who were really bad may have been paid a pittance – but there was no favouritism, as they were all getting exactly the same rate per sale or per envelope. Now you need to make sure you can prove all your workers get at least Minimum Wage even if what they achieve for you is, frankly, not worth it.
For example, you may have some commission-only sales staff. Those who are really good at the job may be the best paid individuals in your company. Better paid than the Managing Director. This is not at all unusual. You want to motivate the best to work for you rather than for your competitors. If your best salesman has just made a sale that has added £50,000 to the bottom line and you have rewarded him with an additional £5,000, do you really care if that brings his package this year above your own?
But amongst them may be some sales staff who are not yet very good at the job, and a week goes by without them getting a single sale. You have always kept these people on for at least the first few weeks, as you have found that even some of your best sales people started out with dry weeks like this. If you pay weekly, you will now have to ensure that they get paid at least the Minimum Wage for that week of work. This may cause resentment with the more successful staff who will then see their colleagues “getting something for nothing”. So you may now be forced to switch to a different basis for all your sales staff, one with a basic wage and a commission rate which is lower than you were previously able to pay. The end result? The sales people who are not very good are now getting paid more than they were before and the better sales people are not getting as much as they were. Not ideal, but probably essential if you want to keep on the right side of the law. You will probably also have to start acting a lot more promptly to axe any staff who seem unable to meet their quota unless you want to see adverse effects on your profit and loss build up quite quickly. On the surface, not a bad idea. Except, of course, it means it is now more difficult to give a trial basis to a new sales person who might one day become your next super salesman or saleswoman.
The position is a little different for piece workers such as envelope stuffers. It is rather more complex. In this case you have to be able to show that the rate you pay per “piece” (for example the rate per envelope stuffed) means that an “average” worker would earn at least 120% of the Minimum Wage per hour.
If you have several envelope stuffers this means some of them could end up on less than Minimum Wage and you would still not be breaking the law, provided you have done your homework properly and can prove your figures. You should have a trial run where you time the staff completing the work in order to establish an average number of “pieces” per hour an average worker can achieve, and then make sure the piece rate you set would be 120% or more of the Minimum Wage if your workers maintained that average rate. The staff who conduct this trial run for you should be a representative sample, not simply the fastest workers. Unless you employ a large number of piece workers it would be best to run the test with all of them. You should ensure you record the results carefully, indicating the date and times the test was run, and preferably getting each participating staff member to sign agreeing the results. This record will need to be retained and presented to Revenue & Customs staff if they wish to check compliance with the National Minimum Wage Act.
If you have some staff who are paid on a different basis to an hourly, weekly, or monthly rate, make sure you do your homework properly and ensure you do not inadvertently breach the provisions of the National Minimum Wage Act. Do not allow your name to be the next one on the Revenue & Customs Prosecution Office list.
Adviser Breakthrough Training Solutions Ltd. takes no responsibility for loss occasioned by any person acting or refraining from action, or in consequence of any other person acting or refraining from action, as a result of the material in this article.
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