Policy and research technical lead The Chartered Institute of Payroll Professionals
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NMW non-compliance scrutinised

Matthew Taylor expands on his review of employment practices in his role as the interim director of the Labour Market Enforcement (DLME) and focuses on National Minimum Wage non-compliance, the naming scheme and the prospect of a single enforcement body.

22nd Jul 2020
Policy and research technical lead The Chartered Institute of Payroll Professionals
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The former chair of the Taylor Review and current interim DLME has released an annual report, which reviews the delivery of the strategies set by his predecessor, Sir David Metcalf.

The DLME sets the strategy for enforcing national minimum/living wage, the Gangmasters and Labour Abuse Authority (GLAA) and the Employment Agency Standards (EAS) Inspectorate.

Compliance theory and approach

The DLME’s annual report reflects on the four broad strategy aims of 2018-2019: compliance, deterrence, improvements that could be made to enforcement approaches, and the enforcement gap. The latter point Taylor continues with throughout the report and highlights that the need to evidence the magnitude of non-compliance in the labour market will remain his highest priority.

Of the 37 recommendations made in the previous strategy, only three were rejected outright, interestingly two linked directly to NMW compliance and recommended:

  • In the longer term, hours and hourly earnings should be captured in real time Information data returns to HMRC.
  • The use and imposition of much more severe financial penalties to act as a greater deterrent against non-compliance. The NMW penalty multiplier should be reviewed and increased again to a level that would ensure that there is an incentive to comply with the legislation.

Of the remaining recommendations some have been implemented, but others remain to be completed and are at varying levels of progress. It is important to note that there is significant overlap with the recommendations made in the Taylor review and also by the Low Pay Commission (LPC); for example, the requirement to publish hours on payslips where pay varies according to hours worked.

Improving compliance through better engagement with employers

The strategy of Sir David Metcalf, Taylor’s DLME predecessor, was premised on the belief that employer non-compliance was largely caused by ignorance of the law, and many of his recommendations focused on providing the tools to enable the employer to achieve better levels of compliance.

The report acknowledges that whilst NMW guidance, in large part, remained the same for the period that the annual report covers, a significant amount of work has been carried out by both HMRC and BEIS in improving the strategy for employer guidance and becoming more open to working together with employers and their representatives, and to date has:

  • Updated BEIS NMW guidance on sleep-in shifts and guidance on unpaid work trials
  • Reviewed and amended the NMW Calculator so that it now considers common underpayment risks
  • Engaged a readership panel to improve the clarity and readability of guidance

The report gives an amber light to this work which was a key focus of the 2018-19 strategy. Additional improvements include:

  • Targeting employers with more timely guidance by the use of nudge communications and targeted emails
  • Improving the availability of information through webinars and the Employer Bulletin
  • Design of new processes, for example, the voluntary declaration process
  • Improving links with partners such as Acas

As work is ongoing, Taylor would like to receive more feedback from employers on their experiences of improved communication.

BEIS naming scheme

The aim of the naming scheme, and how it could become more effective, was something that the CIPP felt could be better developed, to prevent the scheme from becoming a modern-day stocks and pillory, where a named employer comes under the spotlight of shame due to being issued with a Notice of Underpayment (NoP).

No details were provided as to why that may have occurred – was the reason criminal intent, or lack of knowledge and ignorance due to the complex NMW regulations?

Using The Pension Regulator (TPR) quarterly compliance reports as an example, it was demonstrated that the naming scheme, together with greater quality of information as to why the NoP was issued, could provide an opportunity for education. It’s a point that Metcalf acknowledged in his recommendations.

In his annual report, Taylor, voiced concern that that scheme was suspended for so long. “It is now over 18 months since the last naming round took place. I am therefore pleased that, in February, BEIS is announcing that a reviewed scheme will recommence that both recognises the sharper focus advocated by my predecessor, and follows a stronger compliance and education approach to help employers get it right. I will monitor how this progresses with interest.”

Single enforcement body

The prospect of the three agencies coming together under one organisation was proposed in a consultation in 2019, and the government has yet to publish their response. Included within the Queen’s Speech there remains strong optimism that this will come to fruition, albeit on a slightly delayed timetable due to Covid-19 impact.

In addition to bringing together the three enforcement bodies, the consultation proposed that such a body could provide greater state support to vulnerable workers to support their claim for holiday entitlement and Statutory Sick Pay (SSP).

Currently holiday entitlement can only be claimed by workers through the tribunal process, and whilst a process for handling SSP disputes is well established within HMRC, it still remains for the worker to have awareness of this process, which, Taylor believes, hampers a worker in their bid to access their rights.

The future

This year’s strategy has yet to be published; however, the call for evidence focused on non-compliance in sectors that are considered to be high risk including construction, agriculture, hand car washes and social care and non-compliance more widely. The publication of the 2020-2021 strategy has been delayed due to Covid-19 but it will be interesting to see how it builds on the foundations laid previously.

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