In the first of the annual Labour Market Enforcement Strategy reports, published earlier this month, the Director of Labour Market Enforcement, Sir David Metcalf, identifies eight key risk sectors for labour exploitation, including care, hospitality, construction and factories/warehousing. The report sets out 37 recommendations aimed at combatting non-compliance in the labour market.
A number of the recommendations echo those in the Taylor Review of Modern Working Practices and in the Government’s response to the Taylor Review, including giving workers the right to a written statement of terms and conditions from “day one” and right to a payslip, and better enforcement of holiday pay rights. However, a number of them are new, such as increasing the size of civil penalties for employers, more prosecutions for NMW non-compliance and a system of joint responsibility for brand and supplier.
National Minimum Wage
According to official data from the Office for National Statistics, it is estimated that in 2017, 342,000 jobs were paid below National Minimum Wage (“NMW”). In order to tackle employer non-compliance, Sir David advocates a policy of proactive enforcement.
The report recommends increasing financial penalties as a greater deterrent to non-compliance. It also recommends charging fees for intervention and recycling the higher penalty income back into the enforcement system.
In addition, Sir David considers that insufficient use is made of prosecutions for non-compliance – only 14 NMW prosecutions have been made since 1999. In his view, there should be greater use of, and publicity for, prosecutions in order to increase the deterrent effect. Although costly, he suggests that they could be funded by the recycling of penalty income.
Sir David acknowledges that he has “a degree of sympathy” with accidental breaches and recommends that BEIS and HMRC generally improve their support and education of employers to reduce accidental non-compliance, particularly around technical aspects of the NMW such as pay averaging and salary sacrifice. He recommends moving away from public naming and shaming for accidental breaches to a focus on more serious abuses.
Holiday Pay
The report identifies an “enforcement gap” in relation to holiday pay and calls for HMRC or another state body to be provided with the powers and remit to enforce holiday pay rights for all workers, including mechanisms to recover holiday pay arrears.
Joint responsibility of brand and supplier
Sir David regards the growth of supply chains as “one of the most prominent manifestations of the fissured workplace”. He recommends implementing a system of “joint responsibility” whereby the actions of suppliers down the supply chain are linked to the brand name at the top and both are put at risk of public naming and shaming for non-compliance.
Conclusion
In light of Sir David’s report and the Government’s response to the Taylor Report, it seems that we can expect to see changes being made in relation to the enforcement of the NMW and worker’s rights. Although the NMW penalties have already increased twice in the past five years and are currently 200% of total arrears owed, it appears that the stakes may be raised even higher – public naming and shaming looks set to continue, and financial penalties may increase further in line with Sir David’s recommendations. The recommendation of greater clarity with regard to the technical aspects of the NMW is likely to be welcomed by employers. In addition to the particular areas identified in the report, employers can fall foul of areas such as the rules on deductions for NMW purposes, particularly in relation to uniform costs. Further guidance here would no doubt be helpful. If you have any questions or would like more information, please get in touch.