June 2009

NATIONAL MINIMUM WAGE CHANGES

A number of changes were made to the National Minimum Wage Act 1998 (NMWA 88) by the Employment Act 2008. The latter came into force on 6 April 2009, and makes the following broad changes:

Arrears will in future be calculated at the current rate of minimum wage, rather than the rate applying when the arrears arose;

There is a new automatic penalty which applies to all non payment of minimum wages, under which the minimum penalty will be £100 and the maximum £5,000.

There is a new right to prosecute offenders in the Crown Court and impose an unlimited financial penalty. This will generally apply to failures to pay minimum wage and obstruction of officers carrying out a minimum wage enquiry;

Extra rights for officers to take records away from employers' premises for the purposes of a minimum wage enquiry;

The combining of arrears notices and penalty notices in a single document.

Arrears - Calculation from 6 April 2009

Arrears can be assessed for up to six years. The new rules require employers to pay arrears throughout the time minimum wage legislation was not observed. The new formula in the legislation aims to restore the purchasing power of wages that were not paid at the proper time. For each pay reference period the formula is:

(Arrears at original rates/old rate of NMW) x current rate of NMW

Employers will be able to appeal both the amount of the arrears and the penalty to an Employment Tribunal.

Financial Penalties

The automatic financial penalty is calculated as 50% of the amount of arrears. The amount so computed is subject to upper and lower boundaries:

The minimum penalty is £100, and

The maximum penalty is £5,000

Early Payment Discount

If the employer settles the full arrears and 50% of the penalty within 14 days of the notice of arrears then the remaining 50% of the penalty will be cancelled. (New S19A (10) NMWA 88).