National minimum wage - changes from April

Failure by an employer to comply with the national minimum wage regulations has, since their inception, been a criminal offence. Compliance includes not only the actual wage but extends to record keeping and related matters. Liability for corporate employers can be imposed on directors, members and other officers in a manner similar to liability under the Health & Safety regulations.

Presently, the offence can only be prosecuted summarily in the magistrates’ court, with the maximum penalty being a level 5 fine on the standard scale (£5,000).

On 6 April, the Employment Act 2008, section 11 comes into force. This amends the National Minimum Wage Act 1988, section 31, after which offences will be triable either way. This will enable the magistrates to commit a case to the Crown Court where the magistrates consider their limited sentencing powers will prove inadequate.

The Crown Court has the power to impose a fine of an unlimited amount, albeit that the fine must observe CJA 2003 principles in reflecting the seriousness of the offence and the financial circumstances of the offender. Importantly, perhaps, the Crown Court has the power, not available to the magistrates, to award an alternative custodial sentence which will apply in default of payment of some, or all, of the fine imposed on the offender. For example, a failure to pay a £100,000 fine can lead to a default custodial sentence of 2 years.

It remains to be seen whether these increased sanctions will be combined with a more vigilant approach by HM Revenue & Customs, whom are responsible for monitoring employers’ compliance with the regulations. It is no great secret that some Revenue officers have shown little enthusiasm for the regulations and consider, not without some justification, that such tasks are outside of the natural remit of a tax agency.

Whilst beefing up the legislation in the context of those employers of third party sweat shop labour is unobjectionable and, indeed, probably long overdue, the same regulations do, of course, apply across the board and do, therefore, also affect those in benign situations where the employees not only do not need the protection of the law but, moreover, would prefer to be without it.

Here, there are many family run businesses which have no third party employees and are reluctant to enter into the major heave of operating a payroll for the sole purpose of complying with regulations which are of no practical relevance to them. Many would prefer to avoid the undue administrative burden which comes with PAYE compliance and concentrate their efforts instead on the productive aspects of their business. There has, over the past 10 years, been a seemingly tacit agreement to this approach by the Revenue and we must hope this will continue.