Increased penalties for national minimum wage (NMW) breaches

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The Government has set out changes to the enforcement of the National Minimum Wage which could see penalties of up to £20,000 being imposed.

The immediate penalty will be changed to 100% of the underpayment, rather than 50% as currently. The changes are due to come into force this month but the relevant regulations have not yet been passed.

When a Notice of Underpayment is issued by HMRC, it will usually be for the arrears owed to the worker(s) (at the current rates rather than the rates in force at the time of the underpayment) accompanied by a penalty.

The penalty is currently 50% of the underpayment for all workers specified in the Notice of Underpayment, subject to a minimum of £100 and a maximum of £5,000 for that employer.

The penalty is reduced by 50% if paid within 14 days. When the relevant legislation is in force (and the Government expects it to be this month), the penalty will immediately be set at 100% of the underpayment, subject to a maximum of £20,000 for that employer.

In the future, the Government intends to increase the maximum penalty to £20,000 per underpaid worker. It is not known when this additional change is to be introduced, which will require a change to the National Minimum Wage Act 1998.

The measures proposed by the Government builds on the enforcement regime which includes 'naming and shaming', whereby employers found in breach of the NMW are publicly named by the Department of Business, Innovation and Skills (BIS) unless particular exceptions apply.

The scheme, which originally only operated if certain conditions were met, was revised in October 2013 to make 'naming and shaming' automatic unless there are specified reasons for not doing so. The Government's revised enforcement policy can be found here.

In December 2013 the Government also updated its guide on how to calculate the NMW.