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HMRC gives Iceland the cold shoulder over minimum wage violations

2nd Jan 2019
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You’re not the only one dealing with a festive hangover. A Christmas savings scheme for Iceland Foods’ employees has fallen foul of National Minimum Wage (NMW) regulations, leaving the supermarket with a potential £21m bill.

At Iceland, employees can set aside money from their weekly paycheck and claim it back on demand. The scheme -- which is voluntary -- is branded as a benefit, intended to help employees save over the year for Yuletide indulgences. The money is kept in a ring fenced bank account and employees can withdraw their money at any time, not necessarily at Christmas. 

But according to HMRC it constitutes a violation of NMW rules as some parsimonious employees fell under the minimum wage mark after contributing to the scheme. That they eventually received the full amount is irrelevant in HMRC's view. 

The underpayment amounts to £21m and Iceland also faces a potential fine of double the amount of the alleged underpayment.

Speaking to The Times, which first reported the story, Iceland’s chief exec and founder has branded HMRC’s allegation as “just madness”. Sir Malcolm Walker pledged to fight the HMRC claim.

In a searing blog posted on Iceland’s website last year, Walker attacked the investigation in its early stages. He observed that Iceland has “continued to raise pay each year” but “the introduction of the National Living Wage has brought our rates much closer to the legal minimum and this has recently has brought us under the baleful gaze of the HMRC minimum wage task force”.

Iceland’s NMW troubles don’t end with the savings scheme, however. The old chestnut of employee uniforms also cropped up. HMRC claimed that Iceland staff should be compensated for their work footwear since staff guidance advocates "sensible shoes" should be worn.

The guideline applies only to retail staff, as the company’s warehouse workers are provided with free safety shoes. The case echoes last year’s NMW kerfuffle centering on the asian food chain Wagamama.

The restaurant chain was forced to repay an average of £50 to 2,630 employees after an “inadvertent misunderstanding” of how minimum wage laws apply to staff uniforms. Front-of-house staff are required to wear black jeans or a black skirt with their branded Wagamama top.

The government considered this akin to asking the staff to buy a uniform. Wagamama updated its uniform policy and now pays “a uniform supplement to cover the black jeans”.

As longtime AccountingWEB member New Moon observed at the time, “The [Wagamama] case seems to centre around asking staff to wear a particular colour or style of clothing is effectively creating a uniform, even though the items of clothing don’t have a logo and would previously be called dual purpose by HMRC.”

Reflecting on both strands of the investigation into Iceland’s NMW practices, Walker wrote: “You’d think HMRC might put more effort into chasing the £1bn of corporation tax successfully avoided by the likes of Apple, Facebook and Google, or the VAT dodged on Amazon and eBay for which they castigated by the Commons Public Accounts Committee last year.”

According to Steven Porter, a partner at Pinsent Masons, the uniform element crops up frequently in HMRC NMW task force investigations, but the savings scheme adds a layer of intrigue. “HMRC has got the bit between its teeth when it comes to National Minimum Wage rules and looks determined to pursue anything it sees as a breach,” Porter said.

He added, “HMRC are policing innocent breaches arising from uncertainty in the law. There appears to be no grading in that respect. I can see where HMRC are coming from, technically speaking those employees didn’t receive the right amount of money. But the legislation is very mechanical and Iceland are trying operate commercially and help their employees.”

The ultimate story here, according to Porter, is that HMRC is taking a much tougher stance on the National Minimum Wage, even over simple technical breaches. According to Pinsent Masons’ research, the number of investigations opened by HMRC into employers over potential breaches of the NMW has increased 43% in a year to 3,975 in 2017/18, up from 2,775 in 2016/17.

Replies (17)

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By neiltonks
02nd Jan 2019 17:17

The issue of the "Christmas club" is intriguing, and any legal challenge will presumably hinge on whether these amounts are 'for the benefit of the employer' or not. HMRC seem to be saying that they are, because they go into a company bank account, while Iceland contend that they're not, given that the employees don't have to participate and can access the money at will.

The legislation around this is deliberately tight, in order to prevent unscrupulous employers nominally paying minimum wage but then imposing mandatory charges for processing payroll, heating the building, breathing company air or similar, in order to claw some of the money back.

The argument is basically about how far this prohibition on the company getting some of their employees' pay back extends.

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By SteLacca
03rd Jan 2019 08:15

So two employees, side by side, and both working for Iceland on the same hours and the same pay each save £5 per week from their pay towards Christmas.

Employee 1 put's the money in a savings account, with a 90 day notice period for withdrawal.

Employee 2 joins the company savings scheme with immediate withdrawal possible.

The employer breaches NMW in respect of employee 2 but not employee 1, despite employee 2 being in a more favourable position?

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By SJH-ADVDIPMA
03rd Jan 2019 11:34

Hmm, seems minimum thought has been waged here, by HMRC.

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By carnmores
03rd Jan 2019 11:56

Shame on HMRC wrong target again

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By dmmarler
03rd Jan 2019 12:02

If the deductions are going into a Iceland bank account, then what about auto-enrolment deductions? They go into a company bank account before they are transferred to the pension provider …. Is HMRC going to really play silly games around this as well?

If the employer is acting under the employee's instructions to deduct the money, and the terms of interest and repayment are clear, and tax and NI are calculated on the gross pay before deductions, then HMRC is on a hiding to nothing. The employee will not get a better deal elsewhere.

Or is HMRC saying that the scheme should be run as a separate Trust fund with all the legal costs/complexities that requires ?

As to the matter of sensible shoes, this is just an employer prompt to employees to think about the fact they are going to be on their feet all day. It seems there is no definition of "sensible" and no requirement for the employee to do this - and if someone wears sandals on a very hot day, that is sensible in my book as the warehouse staff will do all the heavy work!

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Replying to dmmarler:
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By neiltonks
10th Jan 2019 13:10

Maybe the difference between this saving scheme and pension deductions is that the savings scheme money never leaves the control of the employer, while the pension money does. In any case, deductions required under auto-enrolment would presumably be covered by the exception for deductions required by legislation.

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By 0118295
03rd Jan 2019 12:23

A key question seems to be: Were the savings scheme contributions made after tax and NI had been calculated, or when the employee withdrew the cash from the savings scheme? In other words, were tax and NI calculated on the full gross pay?
If the savings contributions were deducted from net pay, then there is surely no case to answer, and HMRC has wasted taxpayers money that should have been spent chasing the big guns.

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By chasmeehan
03rd Jan 2019 12:56

Agree this looks like an edge case but NMW (like Money Laundering) is a"third rail" area as it not a tax issue but social law enforcement. In this area there is a history in the employee protections introduced against the "company store" and is complicated by the implication that the company may be seen as taking deposits without the consumer protections of FSMA as it is not clear whether the "ring fenced" bank account is robust for the employees under insolvency law. Hopefully there is a work-around to be negotiated that squares the good intentions with the social law

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Replying to chasmeehan:
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By dmmarler
03rd Jan 2019 13:51

Just as pension deductions go into a company bank account before they are forwarded to the pension provider - will HMRC now expect everyone to set up a tiny "trust" bank account to handle these funds in transit?

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Replying to dmmarler:
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By carnmores
03rd Jan 2019 14:11

Bingo!

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By tedbuck
03rd Jan 2019 16:40

HMRC being congenitally stupid yet again. I suppose they have lawyers who want an easy job trying to hit sitting ducks rather than face real opposition from the big offenders.
Might be worth a FOI request to ascertain the cost of these ludicrous cases of which there seem to be far too many these days.
HMRC has so much egg on its face that it is beginning to look like a chicken farm.
You would have thought they had better things to do with the tax system crumbling around them.

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By alan.rolfe
04th Jan 2019 08:56

Many years ago I used to work for Iceland (or Bejams as it was then) as a student. The branch had to manage its own budget and no cash to pay our overtime, so we were paid in stock - mostly beer (we were 16/17, so that was fine!) and cakes. The idea of NMW enforcement back then would have helped me get the cash I wanted, but I did find the beer an acceptable second choice!

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By Chris Pittock
04th Jan 2019 12:07

So we have two different employees, both earning the same money, but because of when they take it, one is viewed as under the NMW threshold and one above! HMRC must not be allowed to win this one.

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By AnnAccountant
04th Jan 2019 12:16

The problem is, Mr Walker hasn't given us the information we need to judge whether HMRC has acted fairly.

He has just gone off on a Daily Mail rant about other companies - rather than focussing on his own issue.

If the savings scheme also acts to defer the IT and NIC then I would say it is a fair cop as you can't argue staff are entitled to the money for NMW purposes but argue they are not for tax purposes.

But we don't know if this is the case yet as Mr Walker has withheld relevant facts - but presumably wants us to side with him regardless......

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Replying to AnnAccountant:
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By legerman
04th Jan 2019 13:36

AnnAccountant wrote:

If the savings scheme also acts to defer the IT and NIC then I would say it is a fair cop as you can't argue staff are entitled to the money for NMW purposes but argue they are not for tax purposes.

But we don't know if this is the case yet as Mr Walker has withheld relevant facts - but presumably wants us to side with him regardless......

The money is deducted from their net pay every week and refunded on demand. A friend of mine participated in this scheme and found it helpful in putting money aside for Christmas.

If it was used to defer tax and NI the employee would get a bit of a shock when they only get 670 quidish of the 1k they saved on the week it was refunded.

This is a ridiculous stance from HMRC and needs to be killed dead.

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By Glenn Martin
04th Jan 2019 14:15

Surely this is not what the NMW legislation was meant for, and surely they would lose at appeal/tribunal.

Does HMRC actually have any clue how a business works? All that will happen is Iceland will stop this scheme and staff will miss out on it, when I probably was very popular with staff.

Why don't you hear of dodgy companies who pay foreign workers less than £7.83 coming unstuck as these are people who are genuinely exploiting low paid workers.

The reason is it would take some effort, to take some action against genuine offenders.

Also in the real world all that happens is that if Iceland have to provide sensible shoes for their staff, it will be paid for elsewhere as the company will just withdraw benefits like enhenced pay for Bank Holidays etc to compensate.

High street is suffering enough without this sort of nonsense dumped on them.

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By Ralphgab
13th Mar 2019 07:22

HMRC lost the case against Middlesbrough football club which was deducting, at the employees' request, payments for season tickets, and thus reducing the net pay to below NMW. So I see no difference here. No doubt if the employees received free season tickets that would be a BIK. HMRC want it both ways!

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