The Department for Business, Energy and Industrial Strategy has 'named and shamed' 179 employers for failing to pay the national minimum wage ("NMW") to a record 9,200 workers with unpaid wages amounting collectively to £1.1 million. Fines of £1.3m were further payable to the government.
Whilst prominent sectors on the department's list included football clubs, care homes, charities, dentistry, and hair dressers, examples of large retailers and restaurants were typically used as the "household names" to grab attention in many of the headlines. For example: TGI Friday, Wagamamas and fashion retailer Karen Millen.
Wagamamas was described as the 'worst offender' and explained that in their case, this was principally down to an inadvertent misunderstanding of how the NMW applied to required staff 'uniforms' (which actually seems to have been the issue catching many of the other named businesses out).
Essentially, if you require staff to wear a specific uniform at work, and you try and charge them for the cost of that uniform by making a deduction from their pay, then that deduction will be taken off in advance of calculating whether the individual was paid minimum wage for the period in question (i.e. when you take that off and look at what's left, then did they still end up with minimum wage or not?).
In many cases, that makes a lot of sense, especially if we're talking about (say) a polo-shirt with the name of the company emblazoned across it in big bold letters. By all accounts though that wasn't what Wagamammas were doing. In their case, it would appear that they'd had in place a requirement that front-of-house staff needed to wear 'casual black jeans or a skirt' (together with their Wagamamma branded top). As to the 'casual black jeans or a skirt' it seems it was entirely up to the employees how and where they got these (and indeed they may well have had a pair of casual black jeans lying in their wardrobe at home already). It seems then that no direct deduction was made from individuals' pay by Wagamamma linked to those items, however HMRC apparently determined what the theoretical cost of obtaining such a 'casual black jeans or a skirt' would have been, and then notionally deducted those theoretical clothing costs from the wages in the period in question. Where wages then fell below the relevant minimum wage rate after that notional deduction was made, then it was that 'underpayment of minimum wage' which the company was punished for.
The introduction of the new higher National Living Wage ("NLW") for workers aged 25 and over from April 2016 led many businesses in these sectors to have to consider other ways of increasing efficiency such as outsourcing functions, increased technology, redundancies/restructures, refiguring shift patterns, and reshaping benefits. With the NLW and Minimum Wage rates set to rise further from 1 April 2018 (NLW moving from £7.50 to £7.83 and minimum wage from £7.05 to £7.38) pressure on already tight margins in the retail and hospitality sectors is only going to increase. What this latest raft of minimum wage 'naming and shaming' makes clear however is that seeking to push staff uniform costs onto staff by having very simple uniform policies couched in general terms risks coming under very heavy scrutiny by HMRC. Care therefore needs to be taken in respect of any uniform policy being operated where staff are being paid at minimum wage rates, and consideration given to options such as providing a small but well thought through one off 'uniform allowance' or similar payment at the outset of employment.
As well as the impact of fines and compensation payments hitting a businesses' pockets as a result of being found to be in breach of minimum wage requirements, the effect of negative PR should also not be underestimated. Today, a businesses' brand and corporate and social responsibility image is increasingly important for consumers and it can be easily damaged by negative headlines hitting the news shelves and social media newsfeeds.
To avoid exposure to expensive legal, regulatory and PR challenges around NMW issues, employers should consider conducting an audit of their current pay arrangements to ensure that they are not falling foul or NMW requirements as a result of industry wide inadvertent misunderstandings.
Restaurant chains Wagamama and TGI Fridays have each been fined an undisclosed amount for failing to pay staff the National Minimum Wage.