Minimising the risk: national minimum wage

As a large employer national minimum wage compliance should be a priority for the transport industry. However, the Department for Business, Energy and Industrial Strategy’s recent report on National Living Wage and National Minimum Wage compliance and enforcement identifies the “transportation and storage” sector as having 37,226 jobs paid at or below the relevant minimum wage rate.

Courts and tribunals in recent employment status cases involving names such as Uber, CitySprint and Addison Lee have decided that so-called “self-employed contractors” working in the gig economy are in fact “workers”. These decisions mean that, unlike self-employed contractors, they are entitled to the minimum wage that can have costly consequences for employers.

Employers whose workforce is made up of individuals with a questionable employment status should carry out a risk assessment to calculate how many fall within the “possible worker” bracket and any potential minimum wage shortfall. Many employers have struggled with the concept of deductions and the effect this has on minimum wage.

HMRC says: “Any deduction or payment from the worker in respect of expenses incurred in connection with his employment will always reduce minimum wage pay.” Unfortunately, it is not always so clear cut.

Common areas of confusion where pay is reduced for minimum wage purposes include:
. where an employer requires a worker to wear a uniform then deducts that amount from pay or requires the worker to make a payment to the employer;
. salary sacrifice when a worker gives up the right to part of the remuneration due under their contract of employment. In return the employer usually agrees to provide some form of non-cash benefit, for example child care vouchers; and
. when an employer makes deductions from a worker’s pay for the employer’s own use and benefit - for example, a deduction for meals or transport provided by the employer.

Employers must factor in deductions when considering minimum wage compliance. Living accommodation is the only benefit in kind that counts towards the minimum wage; an employer can offset £7 a day or £49 weekly against the minimum wage requirement if it provides living accommodation.

However, if deductions are made for accommodation but the employer is not providing it, this cannot be offset and will reduce pay for minimum wage purposes. HGV drivers who sleep in a cab overnight are not considered to be provided with living accommodation.

The HMRC gives the specific example of a driver who sleeps in his cab during the week. In this instance the employer is not considered to be providing living accommodation so the offset does not apply.

If a deduction is made by the employer in respect of the employer’s fuel to run the truck’s heating, the full amount of that deduction will reduce the minimum wage because it is a charge for the use and benefit of the employer. Time spent travelling to and from the normal place of work does not count as payable time.

Government guidance says travelling between home and work, regardless of whether or not the worker has a fixed place of work, does not count as working time for minimum wage purposes. The guidance states that although the Court of Justice of the European Union ruled that journeys made by workers without a fixed place of work between their homes and the first and last customer of the day constitutes working time under the Working Time Directive, it does not mean it constitutes “time work” for the purposes of minimum wage legislation.

Employers must consider what time counts for the purpose of minimum wage. For example, if an individual has to travel from home to pick up a load from a depot, the travelling time does not automatically count for minimum wage purposes.

Each case will depend on the individual’s circumstances, including their normal place of work. However, certain periods of travelling time do count, for example, when a worker is waiting to collect goods.

The complex nature of minimum wage calculations, means many employers have inadvertently fallen foul of the legislation, resulting in substantial penalties and reputational damage from naming and shaming - more than 600 employers were named in 2017/18. The impact of non-compliance is significant.

Workers can bring unlawful deduction from wages claims (limited to a two-year backstop on arrears) or breach of contract claims (limited to six years of arrears). Employers could also face significant penalties through civil enforcement.

The penalty for failing to comply with the minimum wage is up to 200% of the total underpayment subject to a maximum penalty of £20,000 per underpaid worker. Speedy compliance with the underpayment notice reduces the financial penalty by 50%.

In rare cases of persistent non-compliance a criminal investigation can be launched. Employers should undertake a minimum wage risk audit and where workers are paid on or near the minimum wage they should seek specialist advice regarding compliance.

By Charlotte Lloyd-Jones and Joanne Frew