Government reforms (1): National Minimum Wage changes

The Government has published its response (available here) to last year’s consultation on reforming the National Minimum Wage (NMW) regulations.  As part of this response, the Government has announced a number of changes to the regulations in a bid to tackle previous criticisms of, in particular, the operation of salary sacrifice schemes and treatment of salaried hours workers.

Draft amending regulations are due to be published in time for the proposed implementation date of 6 April 2020. At the same time, the Government has confirmed that the public naming of employers who fail to pay the minimum wage will be resumed, although the threshold will be raised to include those employers which owe arrears of more than £500.

Salary sacrifice

Until now, employers offering salary sacrifice arrangements (pensions, childcare vouchers, etc.) have been subject to financial penalties if the scheme takes pay below the NMW rate.  The outcome of this has been the exclusion of the low paid from such schemes, for fear of breaching the NMW Regulations.

Changes are now to be made to the NMW enforcement policy so that voluntary salary sacrifice arrangements which would take workers below NMW will not result in a financial penalty being issued.  Further employers will not be named and shamed under the NMW Naming Scheme. This is providing certain conditions have been met, including that the worker has opted into the scheme, and that the underpayment is only caused by the salary sacrifice arrangement.

However, the Government has clarified that it will not amend the regulations to allow workers to agree rates below the NMW, as this may undermine the integrity of the NMW.

Salaried hours workers

To comply with the NMW, employers must correctly categorise the type of work undertaken by workers. This includes the category of “salaried hours” which covers those workers who receive an annual salary in equal weekly or monthly instalments  for a set number of contracted hours i.e. annualised hours and other pay averaging arrangements. However, the category has excluded those who are paid hourly, per day, work shifts or overtime, and consequently have irregular salary payments.  It has also excluded those who are paid fortnightly or four weekly.

Changes are now to be made to allow employers to:

  • pay salaried hours workers in additional equal instalments, such as fortnightly or four weekly; and
  • make premium payments to their salaried hours workers in respect of basic hours, and to allow salaried hours workers’ contracts to specify these premium pay arrangements. These payments will not form part of the workers’ remuneration for calculating NMW pay.

In addition, the regulations will allow employers to choose their own calculation year for their workers, to make it simpler and more flexible when administering the NMW for salaried hours workers.

Name and shame scheme

The Government has also decided to resume the naming of employers who fail to pay their workers NMW or National Living Wage. The scheme, which was suspended in 2019, will now only apply to those employers who owe more than £500 in NMW payments. Previously, the threshold was just £100.

Comment

The changes aim to provide more flexibility in how salaried workers are paid, without reducing protections for workers.  This should help reduce NMW non-compliance due to misclassification or technical errors in the administration of salaried hour’s workers’ pay. For example, the amendment to the rules around premium pay will ensure that workers can receive enhanced rates of pay whilst still being categorised as “salaried hours”.

 

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