Following an announcement by the Prime Minister prior to Christmas, the financial penalty for employers who do not pay their workers the National Minimum Wage(“NMW”) will increase from £5,000 to £20,000.
Currently, any employer breaking NMW law must pay the unpaid wages of the relevant worker and a financial penalty of 50% of the total underpayment of any worker affected. Where this amount is less than £100, the minimum penalty of £100 is applied and where the amount is over £5,000, the current maximum penalty of £5,000 is applied. The penalty is reduced should the unpaid wages be paid within 14 days.
With the new Regulations (which are subject to Parliamentary approval), the penalty will increase from 50% to 100%, as well as making it easier to ‘name and shame’ any employers not paying their workers the NMW.
On top of these changes expected to be put in place from February 2014 onwards, George Osborne’s comments suggested a rise in the minimum wage from £6.31 to £7.00 an hour by 2015, have been the subject of much controversy and debate. This has been prompted by Labour’s claims that workers are not benefiting from the recent economic uplift. Whilst the Chancellor did not recommend a specific rate, the modelling evidence submitted by the Treasury outlines the effects of a raise to £7.00.
John Cridland, Director-General of the Confederation of British Industry, argued that any attempt to increase the rate by as much as 50p is unsustainable, warning that this risks undermining the entire principle of NMW. He also criticised the involvement of politicians and politics in this matter, stating that:
‘Recommending the rate of the national minimum wage must be a matter for the Low Pay Commission, as the Chancellor recognises…An unaffordable rise would end up costing jobs and hit smaller businesses in particular.’
This was echoed by others, including James Sproule, the chief economist at the Institute of Directors, who commented ‘that the Chancellor was putting politics before economics’, and David Norgrove (chairman of the commission):
‘Over the last years the minimum wage has been kept out of politics and politicians have accepted that and they’ve always accepted the recommendations on the main rates and I hope that will remain the case…I know the atmosphere around the minimum wage is fevered at the moment but I do hope we will be able to keep it out of politics.’
Rachel O’Connell, Solicitor and Director, Just Employment Ltd.