Monsoon Accessorize It never Rains but it Pours

National Minimum Wage (NMW)

Today we heard that Monsoon Accessorize topped the Government’s latest name-and-shame list of companies who failed to pay the national minimum wage. It had not paid £104,508 to 1,438 workers. How can an employer fail to pay over £100,000 to its workers? To calculate the NMW to be paid to an employee, an employer would:-

• Take the number of hours the employee worked and
• Multiply it by the current NMW rate.

This should give the minimum amount the employee should be paid…. easy….isn’t it? 

 So where did Monsoon go wrong? 

Well Monsoon required all its employees to wear its clothing when they were working. Monsoon sold their clothing to their employees at a discount. The cost of the clothing when deducted from the employee’s wage meant that they were taking home an amount less than the NMW. Monsoon has subsequently rectified the situation.

But Monsoon is not alone. Other employers have also been caught out. Often the underpayment is not deliberate but where the employer has misunderstood which payments count towards the NMW and which don’t.

Which payments count as Wages?

Clearly basic salary is part of an employee’s wage but what about bonuses and commission? Do these payments count towards the NMW? They do. As do various other payments including piecework payments. If the employer provides accommodation rent free, it can be taken in to account, but subject to a maximum of £5.35 per day. 

Which payments don’t count as wages?

Otherwise perks and benefits in kind such as company cars and private medical insurance don’t count as part of the NMW. Other payments which do not normally form part of the NMW include loans by an employer, advances of wages, pension payments, premiums paid for overtime or shift work¸ regional weightings and on-call allowances. However, if employees are paid the value of these benefits in their standard pay, this will count towards the NMW.

One of the big questions was whether tips and gratuities counted as part of the NMW. Before 2009 this was unclear. Tips and gratuities paid to staff at Annabel’s nightclub were all paid into a bank account for this purpose. They were then distributed to the employees. Annabel’s claimed that the payment counted towards their employee’s NMW. The Court of Appeal decided that the payments were not "paid by the employer" and so did not form part of the employee’s wage. Since 1 October 2009 the law has prevented employers taking account of tips, gratuities and service charges when deciding if a worker has received the NMW. 

So paying an employee the NMW is not as easy as it looks. The unwary can make mistakes. This could result in a potentially large payment to employees which an employer is unlikely to have budgeted for and unwanted, bad publicity.

In April 2016 the Government will introduce the new National Living Wage. The Living Wage Foundation currently calculates the national living wage as £7.85 per hour for those living outside London and £9.15 per hour for Londoners. This compares to a National Minimum Wage of £6.70 for both those living outside London and Londoners. However Government is phasing in the National Living Wage. It will start at £7.20 per hour (for employees aged 25 and over) in April 2016 and is expected to rise to at least £9 per hour by 2020. This will mean an increase in salary for those whose earnings are on or close to the NMW. Employers must ensure that employees aged 25 and over receive at least £7.20 (calculated correctly) from April 2016.