National minimum wage enforcement - inspections, underpayments and penalties
HM Revenue & Customs (HMRC) enforces the national minimum wage (NMW). Agricultural wages inspectors enforce the NMW in the agricultural sector as well as enforcing the agricultural minimum wage.
Inspections by HMRC
HMRC compliance officers may carry out inspections of employers at any time. There is no requirement to provide reasons for an inspection. Officers will act in response to complaints that an employer is not paying the NMW whether the complaint is by workers or others and will also investigate where there may be a risk of non-payment.
Officers must show an identity document on request. They have various powers to obtain information. They can, for example:
- require you or people working for you to produce and explain records about NMW pay
- require you or people working for you to supply further explanations as necessary to determine whether the legislation has been complied with
- enter, at any reasonable time, your premises in order to interview you
- require you to attend for interview at a place of the officer's choosing
- remove NMW records from your premises for copying - HMRC must return the records to you within a reasonable period
It is a criminal offence to obstruct a compliance officer or refuse or wilfully neglect to give information or produce documents to a compliance officer.
Notice of underpayment
If a compliance officer believes that you have failed to pay at least the NMW to a worker, the officer may serve a notice of underpayment on you, requiring you to:
- Repay arrears of the NMW to each worker named on the notice. Arrears are calculated using a formula which includes the current rate of the minimum wage. For an example, see the page in this guide on calculating national minimum wage arrears.
- Pay a financial penalty to the Secretary of State. The penalty is half the total underpayment for all the workers shown on the notice as underpaid for pay reference periods starting on or after 6 April 2009, with a minimum penalty of £100 and a maximum penalty of £5,000.
If you fully comply with all the terms of the notice of underpayment within 14 days of service of the notice, the penalty is reduced by 50 per cent. You may appeal against the notice of underpayment within 28 days of service of the notice.
If the above steps do not result in you complying with the notice of underpayment, HMRC can:
- take a case to a tribunal or County Court (or Scottish equivalent) on behalf of the worker
- prosecute you - deliberate refusal to pay the NMW is a criminal offence
If enforcement proceedings were started against you before 6 April 2009 you may be subject to a different enforcement procedure. You should contact the person named on the notice you received if you need further information on what you need to do to comply with any enforcement proceedings.
There are six criminal offences relating to the NMW. They are:
- refusal or wilful neglect to pay the NMW
- failing to keep or preserve NMW records
- causing or allowing a false entry to be made in NMW records
- producing or furnishing false records or information
- intentionally delaying or obstructing a compliance officer
- refusing or neglecting to answer questions, give information or produce documents to a compliance officer
The fine on conviction for each offence is up to £5,000 (level 5) where tried in the magistrates' court (or the Scottish equivalent).
The most serious criminal cases are triable in the Crown Court (or Scottish equivalent). This means that employers who deliberately fail to pay the NMW may face a potentially unlimited fine.
Since 6 April 2009, HMRC has been able to use the search and seize powers in the Police and Criminal Evidence Act 1984 when investigating criminal offences under the National Minimum Wage Act 1998.
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