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Number of UK National Minimum Wage underpayment reports rises sharply

The number of complaints of suspected National Minimum Wage (NMW) underpayments received by HM Revenue and Customs (HMRC) has more than doubled in a year, according to figures obtained by Pinsent Masons, the law firm behind Out-Law.com.01 Feb 2018

The sharp increase in reports made by whistleblowers to HMRC and Acas may be due to a rapid rise in the number of workers falling within the scope of the NMW, as well as the introduction of a new online complaints process making it easier to raise concerns, according to tax investigations expert Paul Noble of Pinsent Masons.

HMRC received 5,053 reports of suspected underpayments during the year to 31 March 2017, up from 2,513 the previous year. The National Living Wage, introduced in 2016, raised pay from £6.70 to £7.20 per hour, and then £7.50 per hour last year, for workers aged 25 or over. At the same time, the number of workers covered has increased from one million to 1.6 million.

"This is a significant rise in whistle-blowing over the national minimum wage in just one year," said Noble. "Employees are now increasingly knowledgeable about their rights, and they're ready to take action if they don't think they're being paid correctly for their time."

The government has committed £25.3 million for minimum wage enforcement in 2017/18 and launched a £1.7m awareness campaign for workers earlier this year. Employers found to have been underpaying workers face penalties of up to 200% of the arrears owed, up to a cap of £20,000 per worker.

However, the complexity of the rules around the NMW mean that employers can be caught out relatively easily, with common errors including deducting money from pay for uniforms or paying apprentice rates to workers. Recently, a major retailer was fined £1.5m for failing to pay staff for time spent in briefings and security searches outside of shift hours, while failure to properly account for overtime is also a common reason for error.

"Businesses of all sizes can struggle to ensure they comply with the rules, especially now that so many workers fall within their scope," said Noble. "Smaller businesses tend to have fewer HR resources in place to monitor the issue, while larger companies need proper visibility on the ground to make sure breaches aren't taking place."

"However, ignorance is no defence. Having adequate policies in place and making sure they are followed is essential. With more resources being targeted on tackling this issue, companies really can't afford to get it wrong – there is a penalty of up to 200% of the arrears, but the fact that the employer will be 'named and shamed' is potentially much more damaging," he said.

Self-correction by businesses ahead of any action by HMRC was "by far the best way to manage" any potential enquiry, as this would avoid any penalties or adverse publicity, Noble said.