National minimum wage - Is "naming & shaming" still relevant?

The publication announced that over £7.4 million was repaid to nearly 60,000 workers who were underpaid by their employers by breaching the NMW legislation. But is the naming list, in its current format and with shifts in the type of risks arising today compared to over 10 years ago, still considered relevant and proportionate?

Risks to Businesses

518 employers were named for failing to pay the legal minimum wage in relation to arrears that arose from enforcement action taken between 2011 to 2021. As well as having to repay the arrears to workers, an appearance on the list also brings: -

• Reputational damage: Being publicly named can harm a company’s brand and trust with customers and employees.
• Financial penalties: Fines can be substantial and up to double the amount underpaid.
• Operational disruption: Investigations by HMRC can be lengthy and resource intensive.
• Staff retention and recruitment: Underpayment can lead to higher turnover and increased recruitment costs, while fair pay supports stability and productivity.

What sectors were most at risk?

• Retail and Hospitality sectors had the highest total arrears and number of affected workers.
• Non-low-paying/other, such as real estate, financial, education and head office, also showed significant arrears, indicating that underpayment issues extend beyond traditionally low-paid sectors.
• Cleaning and maintenance and Leisure sectors also had notable arrears and worker counts.

Is the naming list still relevant and proportionate?

The naming list is considered to serve as a deterrent by publicly identifying employers who fail to meet their legal obligations, reinforcing the importance of fair pay, especially during a time of rising living costs. It also promotes transparency in the labour market and holds businesses accountable, ensuring that workers and the public are aware of non-compliance.  By also exposing underpaying employers, the policy helps protect businesses that do comply with the law from being undercut by those who don’t.

The DBT and the Low Pay Commission stress that while not all underpayments are intentional, compliance is non-negotiable, and enforcement will continue to ensure workers are paid fairly.

However, is the naming list still packing a punch or is it “here today, gone tomorrow” and time to re-think?

The latest publication, and in its current format, puts the employer with the largest underpayment in the number one spot.  On this occasion, it named a large employer for arrears amounting to c£1.15million for 5,543 workers – that’s an average of £208.27 per worker.  Yet, look further down the list of 518 named employers and there are much higher arrears per worker, for example, c£60k for just 2 workers averaging £30,000 each.  This amount of underpayment suggests something more than an “unintentional” technical breach due to a worker having to buy a pair of “black” shoes for £20 or a few extra minutes of unpaid time worked before or after a shift.  Shouldn’t the list be focusing on naming those employers with breaches of a higher value per worker rather than employers, who because they have 1000’s of workers with a small unintentional breach amassed the highest total NMW underpayment?

What’s next for NMW compliance?

Whether the Naming List is revamped or not, NMW enforcement is here to stay.  HMRC are however making great in-roads into promoting compliance by education through their geographical compliance approach.  This relatively new initiative targets employers and workers in specific geographical locations to not only highlight NMW entitlement to workers but to offer employers an opportunity to review their NMW compliance processes and correct any errors without financial penalty or naming.  A study into their recent North West campaign highlighted:

• Improved Awareness: Employers, workers, and agents showed a better understanding of the NMW rules after the campaign. Employers became more aware of how complex NMW compliance is with many realising that it involves more than just hourly pay, like deductions and working hours.
• Confidence in Information Access: Increased confidence in knowing where to find accurate NMW guidance. Workers and employers felt more empowered to seek help.
• Positive Reception: HMRC’s materials were seen as clear, helpful, and easy to understand.
• Agent Engagement: Agents reported increased confidence in their understanding of the rules.

The publication of the naming list, does, however, serve as a stark reminder that NMW compliance and enforcement is not going away soon. Whilst many payroll applications can be configured to identify a NMW breach when it occurs using pay data and working hours, it does not always capture the NMW risks that lie outside of payroll, such as worker category, unpaid additional working time, and worker incurred employment costs. Assuring NMW compliance is not just checking the hourly pay rate, it is a complex calculation.  Employers therefore need to ensure that their processes, practices and governance are robust and consider all impacting factors when performing their checks.

NMW compliance is complex, so if you don't know where to start, please get in touch for a chat and some pointers on what to look out for.