Middlesex University Report reveals £1.2bn a year in wages goes unpaid

Summary

A report by researchers at Middlesex University called “Unpaid Britain” has detailed the extent to which some employers fail to pay workers correctly.

The report emphasises the need for employers to have clear payroll procedures in place to ensure staff receive the correct payments, avoid legal claims and/or penalties for failure to pay employees correctly.

Findings

The report estimates that £1.2 billion worth of wages are not paid each year for various reasons including:

  • Employees working overtime without pay;
  • Failure to pay the National Minimum Wage correctly;
  • Failure to provide holiday pay, estimated to cost workers a further £1.5 billion a year;
  • Unauthorised deductions from pay, such as for training costs or fines and penalties;
  • Cessation of pay, usually in cases of insolvency;
  • Failure to pay by misclassifying employees as volunteers.

The report argues the need for greater sanctions on employers who repeatedly underpay staff because, the report says, there are minimal consequences for individual employers who fail to pay workers correctly and, in any case, workers’ struggle to enforce their rights in such circumstances.

Comment

Whilst this is only an interim report and is based on a fairly small sample size, the report is a useful reminder of the unwelcome consequences for employers who fail to pay staff correctly.

A major issue identified is the failure by some employers to pay the National Minimum Wage (NMW). The maximum fine that could be imposed for this breach is £20,000 per underpaid worker. HMRC will also issue employers with a notice of underpayment to recover pay arrears owed to workers.  In our experience, in the last 12-18 months HMRC have been focussing on the care and support sector with many clients being contacted by HMRC as to their practices and working arrangements.

Employers do not have to pay overtime, but must ensure that average pay for the total hours’ worked do not fall below the NMW. Information regarding whether the employee can be required to work overtime and whether they are paid for this should be included in the contract of employment.

Employers must also be careful not to make unauthorised deductions from employees’ salaries or underpay employees for the numbers of hours that they work. For deductions to be lawful, they must be authorised by statute, authorised by the employee’s contract or by the employee giving consent. The contract of employment should therefore authorise the employer to make deductions and be clear that these may be made from wages.

Finally, workers are entitled to 5.6 weeks’ paid annual leave under the Working Time Regulations 1998. Workers can bring a claim in an employment tribunal if the employer refuses to permit a worker to take statutory holiday, or fails to pay holiday pay. For guidance on how holiday pay should now be calculated please see our previous blog posts here and here.

For assistance with drafting contracts of employment and general advice, including the payment of holiday pay, please contact the Devonshires Employment Team.

 

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