The Business Secretary, Greg Clark, is to review what he indicated are potentially “overly complex” national minimum wage rules. At the same time, the frozen food retailer, Iceland Foods Ltd is engaged in a dispute with the HMRC over claims by the HMRC that Iceland has breached national minimum wage rules.
“Overly Complex” National Minimum Wage Rules
Greg Clark, the Business Secretary, stated in a letter to the British Retail Consortium that the potentially “overly complex” national minimum wage rules may require reform should it be concluded that they “unnecessarily burden and penalise.” He stated that reform would be contemplated “when evidence shows that rules unnecessarily penalise employers, and that changing them will not reduce the protection offered to low-paid workers.”
In his letter, Mr Clark highlighted salary sacrifice schemes as an area for reform. Another example where companies have encountered problems, however, is in relation to deductions for uniforms.
As regards whether deductions take an employees pay below the national minimum wage, the main problem area relates to whether the deductions are made for the employer’s own use or benefit. Where they are deemed to be for the employers own use or benefit, as they have for the most part in cases relating to uniforms, then the deductions will be deemed to reduce the employees pay and could therefore potentially reduce the employees pay below the national minimum wage and place the employer in breach of the same.
Nevertheless, it has to be said that any uniform policy is undoubtedly for the employers own benefit and should any employer make deductions from pay in relation to a uniform and that takes the employee below the national minimum or living wage, then they are in breach. It is a simple as that. This does not in itself render the rules “overly complex” or an “unnecessary burden“. Instead, the employer has made the employee pay for something (i.e. a uniform) that is not for the employees benefit, but rather their own. If that takes the employee below the national minimum or living wage, then the employer deserves to be named and shamed.
A more contentious area however is in relation to salary sacrifice schemes as that is a much more difficult area to determine whether the deductions are for the employer’s own use or benefit. Accordingly, the Business Secretary, Greg Clark has called for additional information to determine whether amendments to the rules are required.
A spokesperson for the British Retail Consortium, Fionnuala Horrocks-Burns, states that the rules “needed updating to reflect modern pay practices.”
Iceland Foods Ltd’s Dispute With HMRC
Iceland faces a bill of almost £48 million in relation to a Christmas savings scheme and a rule requiring staff to wear “suitable dark shoes.” The Christmas savings scheme is a voluntary scheme that staff could pay into out of their earnings, and which they could withdraw the money from at any time. It was designed as a savings scheme to help fund Christmas expenditure. £21 million was paid into the scheme collectively over 6 years, but HMRC now require the company to pay out £21 million to the employees concerned, and have imposed a fine of £21 million on top. But, how the HMRC are arguing that the money was for the company’s own use or benefit, and whether that contention is sustainable, is unknown. Moreover, how can it be fair for Iceland to pay out £42 million pounds (including the fine) when staff are able to withdraw the £21 million they have paid into the scheme anyway? As Greg Clark pointed out, it is the national minimum wage rules that apply to these type of schemes that are in need of urgent review. Indeed, the managing director of Iceland, Richard Walker, has stated that: “We’re proud to have paid £1.4billion in UK taxes over the last 13 years, and have always tried to do the right thing for our own people. At a time when the UK High Street is under unprecedented pressure, this is idiotic.” Sir Malcolm Walker, the company’s founder added: “You’d think HMRC might put more effort into chasing the £1 billion of corporation tax successfully avoided by the likes of Apple, Facebook and Google, or the VAT dodged on Amazon and Ebay…..Surely the…top priority should be to support and encourage responsible wealth creators, not to harass them?”
Separately, Iceland have been ordered to pay staff who had to purchase shoes to comply with the policy to wear “suitable dark shoes” almost £6 million collectively in compensation on the basis that the pay of those who purchased the shoes could have fallen below the national minimum or living wage at that point of purchase.