Our Employment law Senior Associate, Mary Goldsbrough, looks at what can happen if a company fails to pay its employees national minimum wage.

The National Minimum Wage Act 1998 (NMW) sets out the minimum wages that employers must pay their workers in the UK. The current rates are as follows:

1. £7.50 per hour for workers aged 25 and over

2. £7.05 per hour for workers aged between 21 – 24

3. £5.60 per hour for workers aged between 18 – 20

4. £4.05 per hour for under 18’s who have completed compulsory education (GCSE’s)

5. £3.50 for apprentices under 19 or 19 and over if they are in their first year of apprenticeship.

The Government is keen to ensure that employers pay their workers the NMW. It’s introduced measures to encourage compliance -including the public naming and shaming of employers who fail to pay their workers the NMW rates. 

A business’ reputation is one of its biggest and most valuable assets. Reputational damage can have a much longer lasting detrimental impact than a one-time fine, especially for the bigger, well known businesses. This impact can include loss of customers and business contracts. Repairing this reputational damage - and recovering these losses - can take years. In some cases, a business may never fully recover – those of us with long memories may recall what happened to the Ratner’s brand following some unfortunate remarks by Gerald Ratner.

The Government can also fine employers up to £20,000 per worker paid less than the NMW. Employers will have to pay back the workers (or ex-workers) the difference between what they were paid and the NMW. Employers who breach the NMW will also have to spend a lot of valuable time and resource:

• investigating how the underpayment arose

• working out who was affected and how long they were affected for

• calculating the total amount of underpayment

• reviewing policies and procedures to avoid underpayments in the future.

Several large businesses, including Argos and Debenhams, have now been named and shamed for failing to pay the NMW. They’ve had to publicly apologise and explain how the underpayment occurred – and now have to try to repair their reputations.Common reasons for employers breaching the NMW rules include:

• making workers’ pay for their uniforms

• not paying for worked overtime

 • not paying for time that should’ve been classed as working time e.g. pre-shift briefings.

Failing to pay the NMW has serious consequences. Employers should review their policies, practices and procedures – as well as taking professional advice to ensure they’re NMW compliant – and not at risk of being named, shamed, and fined.