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Business Services  •  Business Tax

Iceland bears brunt of government minimum wage breach crackdown

By RJP LLP on 31 January, 2019

The government has been investing heavily in additional resources to help HMRC tackle the continuing issue of businesses not paying their employees at least the minimum wage rate.

In statements issued last September, HMRC reported that it had identified a record £15.6 million of underpayments, covering over 200,000 workers. Employers have already been fined an unprecedented £14 million for not meeting their legal obligations and over 600 employers were actually ‘named and shamed’ in 2017/18. Of course it’s never good for businesses to be associated with underpaying their employees.

Recent accountancy industry news reports highlight that Iceland supermarket is potentially one of those companies caught underpaying its employees. The supermarket is cited as a potential offender because it ran a savings club scheme that allowed its low-paid workers to voluntarily set aside a percentage of their wages, which would then be returned to them at a pre-arranged time, typically at Christmas. In Iceland’s case, the exact circumstances and the extent to which they are indeed guilty of breaching the Minimum Wage Act is debatable. The scheme was offered in addition to the workers’ normal wages and membership was voluntary. They also did repay to employees all the money they had saved,  which had been held in a separate account and controlled by an independent trustee company that was otherwise completely unconnected to Iceland. However, in spite of this, they are in hot water.

HMRC has calculated that Iceland has been underpaying its staff about £3.5m a year for six years and they have been threatened with a £21m tax bill. This is despite the mitigating circumstances outlined above; the fact that staff  took part in the scheme voluntarily; and  participants had been repaid all the money they had set aside. The result is that Iceland now potentially faces a fine of up to double the amount of the alleged underpayment.

Although the details of this case are complex and open to interpretation, what is clear is the extent to which HMRC is now going to investigate potential breaches of the National Minimum Wage (NMW) Act.  According to government data, the number of investigations opened by HMRC into employers over potential breaches of the NMW Act has increased by 43% in a year to 3,975 in 2017/18, up from 2,775 in 2016/17.

If you are unsure whether you may have inadvertently underpaid your employees, or if you would like to review your payroll processes please contact us for independent advice.

 

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