National Minimum Wage (NMW) has hit the headlines recently with publication of the latest government list naming and shaming employers who fail to pay workers the NMW.
While some employers have simply failed to pay the minimum hourly rate, others such as Karen Millen, Wagamama and TGI Friday’s have been caught out due to confusion over uniform costs.
If employees are required to buy clothing or equipment for the job, such as a uniform or tools, the cost of these should be deducted in calculating whether NMW has been paid. This applies whether the costs are deducted from wages or the employees are expected to provide items themselves. For example, at Karen Millen, shop assistants are required to wear the brand’s clothing while at work.
Even though employees are given a substantial discount on these items, according to HMRC the money spent on this “uniform” should have been deducted from wages for the purpose of NMW calculations. Doing this took their average hourly rate below NMW so Karen Millen were found to have breached the regulations. This practice of staff providing their own uniforms is common in the retail and hospitality industries and employers need to be careful that they are not paying employees less than NMW as a result.
What is a ‘uniform’?
As the issue has not yet come before an employment tribunal, it is difficult to say for certain what will be classed as a uniform. In the case of Wagamama, front of house staff are required to wear black jeans or a black skirt and a branded top. The top is provided by Wagamama but employees must wear their own jeans or skirt and the cost of these was not factored into NMW calculations.
Wagamama were considered to be paying below minimum wage and were fined by HMRC. The situation for TGI Friday’s was similar as their staff were required to wear black shoes and had to provide these themselves. Both of these examples show that even requiring employees to wear a specific colour may be classed as a uniform for NMW wage purposes.
Risks of a breach
For employers who breach the NMW regulations the consequences can be severe. HMRC are responsible for enforcing the regulations and officers can carry out inspections at any time.
Failing to pay NMW can have a range of consequences for employers:
- Reputational damage – underpaying employers can be named and shamed by the Department for Business, Energy and Industrial Strategy (BEIS)
- Financial costs - HMRC can fine employers 200% of the total underpayment up to a maximum of £20,000 per underpaid worker. Employers must also reimburse employees for these underpayments at the current NMW rates. This means if an employee was paid less than minimum wage, they are entitled to the difference between what they received and the current NMW, not the rate at the date of underpayment. With rates having increased on 1 April, this could make getting it wrong more costly still
- Tribunal claims – individual employees can bring claims either in an employment tribunal or in the civil courts.
How to avoid a breach
There are several ways to avoid breaching these regulations:
- Provide appropriate ‘uniform’ to employees free of charge
- Avoid any specific dress requirements
- Increase wages to meet the cost of uniform. The increase must be sufficient as the cost of uniform is counted as a deduction in the first pay period so if employees are paid monthly, the increase over the month must meet the cost and this could result in a significant rise in wages if employees are paid weekly
- Include an extra uniform allowance in the first pay period to cover the cost.
Employers must keep NMW records for three years but, as an employee can bring a claim in the civil courts up to five years after a breach, employers may want to hold on to records for longer so they are able to defend themselves against any claims.
If you would like advice on National Minimum Wage calculations our Employment team would be happy to help.
