The employers consist of a combination of larger companies, including Argos, Marks and Spencer, WH Smith and Lloyds Pharmacy, and smaller businesses and sole traders.
A total of 60,000 workers were found to have been underpaid and employers were forced to pay back what they owe to staff as well as being fined a total of £7 million.
The majority of the underpayments were due to mistakes rather than employers intentionally refusing to pay staff properly.
Some 39% of failures resulted from employers deducting pay from workers’ wages, another 39% were from employers failing to pay workers correctly for their working time and the remaining 21% were from employers paying the incorrect apprentice rate.
What is the National Minimum Wage?
The National Minimum Wage (NMW) is the legal minimum that employers are required to pay their staff. It’s currently paid to 2.5 million workers in the UK and it is compulsory for all employers and applies to all workers regardless of whether they are paid hourly or an annual salary.
The NMW increases on 1 April every year and different rates are set for apprentices and for workers of different ages.
For workers over the age of 23 it’s £10.42 per hour as of 1 April 2023 so the equivalent for someone working 35 hours a week will be an annual salary of £18,964.
This rate is also referred to as the 'national living wage' by the government but is not to be confused with the same term used by the Living Wage Foundation, which refers to a recommended but not compulsory 'real' living wage of £11.95 for London and £10.90 for the rest of the UK.
Bryan Sanderson, chair of the Low Pay Commission, states that: “The minimum wage acts as a guarantee to ensure all workers without exception receive a decent minimum standard of pay.
“Where employers break the law, they not only do a disservice to their staff but also undermine fair competition between businesses.”
Risks and pitfalls for employers
As the above statistics show, the majority of underpayments come from genuine mistakes. So how does this occur and how can employers avoid accidentally underpaying staff?
One of the main causes of underpayment comes from unpaid working time. This can occur, for example, when a minimum wage employee is asked to come into work 20 minutes before the start of their shift to open a shop or cafe.
If they’re not paid for the extra 20 minutes, they are technically being paid less than the NMW for their worked hours. This could add up to a significant underpayment over time.
For shift workers who are required to clock in manually at the start of their shift, staff should be encouraged to do this as soon as their shift starts to avoid losing time.
Requiring staff to pay for their own equipment or uniform is also a common cause of underpayment.
Whilst this is legal, employers should ensure that any payments that employees make do not cause them to drop below the NMW. This applies whether the payments are deducted from wages or paid separately by the employee.
Failing to pay staff for waiting times, training time or essential travel within the working day can also result in wages falling below the minimum.
There’s a risk of this occurring even when an employee’s basic wage is higher than the NMW, for example if they are required to drive for several hours between seeing clients but are not paid for this.
Employers should not use commission or tips to top up wages to the minimum, they must always be paid on top of the minimum and commission-only workers must still receive the NMW.
Some employers might provide housing for employees as part of the job; where this is done wages can be offset to account for the housing provision and this can legally reduce wages below NMW, but only by a maximum reduction of £63.70 a week.
Consequences of underpayment
The naming and shaming of so many employers is a clear deterrent as the reputational damage, particularly for a large company, is significant even when the underpayments are unintentional.
The negative impact on company culture and the consequences for staff attitude, motivation and productivity can also seriously damage a business.
Employees who are underpaid can bring a claim in the employment tribunal and to HMRC.
In addition to having to pay back employees and possibly fines, employers also face a risk of a ban on being a company director for up to 15 years.
Minister for enterprise, markets and small business Kevin Hollinrake, has stated in response to the investigation that: “Most businesses do the right thing and look after their employees, but we’re sending a clear message to the minority who ignore the law: pay your staff properly or you’ll face the consequences.”
If and when mistakes do occur, employers should be diligent to identify them by ensuring calculations are accurate, carrying out regular audits and correcting mistakes promptly – before HMRC needs to get involved.
Sharon Latham is a partner in the employment team at Clarke Willmott