It will have been hard to miss the increasing pressure from the media, MPs and the general public for HMRC to investigate Sports Direct for alleged failures to pay the National Minimum Wage (NMW).
The Guardian newspaper sent two undercover reporters to work at one of the Sports Direct warehouses. They reported a variety of issues regarding the treatment of the workers including an alleged breach of NMW legislation.
The reporters allege that the following two practices meant that their effective pay was below the NMW:
- searches conducted at the end of the day during which time the workers are not paid; and
- docking wages by deducting a penalty of 15 minutes even if the worker is only late by one minute.
Working time is defined as any period during which the worker is:
- carrying out his duties; and
- at the employer’s disposal. (All three criteria must be met.)
In a separate decision the Court of Justice of the European Union has recently ruled, in relation to travel time, that where that time could “neither be shortened nor used freely…for [workers’] own interest” they were at their employer’s disposal and therefore the travel time constituted working time.
There is certainly an argument that if this reasoning was applied to time spent being searched, then that time would be deemed to constitute working time and therefore the NMW should be paid throughout the search. It remains to be seen whether HMRC and the courts take the same view but in the meantime, we believe it would be sensible for such time to be regarded as working time and paid accordingly to ensure that NMW obligations are met.
In relation to the pay deduction, a contractual right to make the deduction would be required otherwise, without the employee’s consent, it would be an unlawful deduction from wages.
In any event, even with a contractual right to make the deduction, an employer would need to be careful to avoid reducing average pay to a level below the NMW.
The issue of NMW enforcement was debated in Parliament on 14 December 2015 following the exposé by The Guardian on the working practices of Sports Direct.
Nick Boles MP, Minister of State jointly for the Department for Business, Innovation and Skills and the Department for Education, confirmed that a crack down on businesses failing to pay the NMW would continue through the following measures:
- Increased penalty for breaches of minimum wage legislation to 100% of arrears with the maximum cap rising from £20,000 per employer to £20,000 per worker affected. The increased penalty has been in place since 1 October 2015.
- From April 2016 the maximum penalty will increase again from 100% to 200% of arrears (still capped at £20,000 per affected worker).
- A new team of compliance officers will be established within HMRC to investigate the most serious cases of employers not paying the relevant minimum wage.
- The new compliance team will have the power to use all available sanctions, including penalties and criminal investigation.
- Continued naming and shaming of employers who do not pay their workers what they are entitled to.
Where workers and employees are earning well over the NMW the amount they are paid for searches can be at a lower rate than the NMW and contractually agreed deductions can be made, provided that overall their average hourly rate meets or exceeds the NMW.
However in potentially lower paid sectors such as retail and care, which often pay no more than the NMW, the smallest of deductions or time paid at a lower rate can bring the average pay below the NMW and result in a breach and the possibility of enforcement action being taken.
If the HMRC investigates Sports Direct and finds that unpaid searches are carried out and disproportionate or unlawful deductions are made for tardiness then it is likely they will be in breach of NMW legislation.
Sports Direct have an estimated 5,000 employees in their warehouses and the potential financial consequences could therefore be significant.
In addition to fines and the potential for criminal prosecution an employer needs to carefully consider the “bad press” that could be generated even before they are formally named and shamed. Sports Direct have already come under fire from the media and their assurance that they will increase pay above the NMW in 2016 appears to be failing to placate the media.
If an individual has concerns that an employer is breaching the NMW legislation then they can speak with their employer, contact Acas or make a report to HMRC directly. There have been various reports that workers for Sports Direct were too worried about losing their jobs to complain. However in light of the recent publicity reminding workers that the Acas helpline is confidential and anonymous we may well see an increase in reports being made.
With the ever-increasing focus on the NMW, and individuals being reminded by the media of their rights, it is important for employers to take stock and review their practices to ensure that, on average, they are paying the NMW or above.
Hazel Sanders is a paralegal and based in the employment team in Exeter. If you would like to contact Hazel, please call 01392 210700 or email email@example.com.