National Minimum Wage (Amendment) (No. 2) Regulations 2020

Considered in Grand Committee

Moved by

That the Grand Committee do consider the National Minimum Wage (Amendment) (No. 2) Regulations 2020.

My Lords, on behalf of my noble friend Lord Callanan, I beg to move these draft regulations. The Government are committed to making the UK the best place in the world to work and grow a business. At the turn of the decade, we confirmed that 2 million low-paid workers will receive the biggest ever cash increase to the national living wage. We have pledged to take the national living wage further, with a target of two-thirds of median earnings by 2024, making the UK the first major economy to set such an ambition.

We are also committed to ensuring that all those who are entitled to the national living wage or national minimum wage receive it. The Government take tough action against the minority of employers who underpay their workers, and we have doubled the budget for minimum wage compliance and enforcement since 2015; it is now at a record high of £27.4 million. However, we are acutely aware of the burden that the regulations, including the minimum wage, can place upon business. As the level of the national living wage enters new territory, we want to make sure that the rules are as straightforward as possible.

As long as workers are getting the wages that they are entitled to, we want to make it easier for businesses to comply with the law. That is why we are bringing forward these regulations. Their purpose is to amend the national minimum wage rules relating to salaried hours work and pay reductions. We have worked closely with stakeholders to identify the areas of the national minimum wage rules that add complexity for employers without providing clear protections or benefits for workers. Employers, particularly in the retail sector, told us that some aspects of the rules can be unnecessarily difficult to comply with. We have listened to these views. Following a review of evidence from the consultation on salaried workers and salary sacrifice schemes, these changes to the regulations will support businesses which employ salaried hours workers.

The rules on salaried hours work provide a method of calculating minimum wage pay for workers who are paid a salary in equal instalments, including where the hours worked each week or month may vary. For example, this method can be used for some teachers who receive equal pay packets throughout the year, including through the holidays, or for chefs who may receive consistent pay packets throughout the year despite large variations in their working hours before and after the busy Christmas period.

Currently, low-paid salaried workers cannot be paid in fortnightly or four-weekly cycles without the risk of their employer breaching the regulations. Evidence tells us that this is a preferred method of payment for some workers and employers. Similarly, if companies were to pay such salaried staff extra for working a bank holiday shift, there is a risk of breaching the regulations as they stand. Evidence from the consultation and stakeholder engagement found that employers are removing premium payments for workers to reduce the risk of minimum wage non-compliance. These regulations widen the range of pay arrangements that are compatible with workers being treated as salaried hours workers, helping to preserve certain pay arrangements that are valued by many workers. As a result, any fixed payment cycle that is between one week and one month will meet the conditions for salaried hours work. Workers will also be able to be paid a premium in respect of their basic hours while meeting the same conditions.

My Lords, I thank the Minister for his explanations. He has gone some way to answering some of my questions. The amendments seem reasonably straightforward. They are very welcome in so far as they incorporate changing work patterns into the minimum wage regulations. Thinking about the current coronavirus situation that besets us, more and more of us will be working irregular work patterns, including, of course, working from home.

As long as the worker performs to the requirement of the contract, I am not sure why you would not measure the amount of work in total hours, or even, more radically, in outcomes achieved. However, outcomes might be a stretch too far away from what we are talking about today, except for those for whom performance bonuses comprise part of their remuneration. My understanding is that performance bonuses would be excluded from the basic minimum wage calculation. Can the Minister confirm that?

The instrument’s main thrust is to accommodate the changing work payment cycles that people have today—for example, fortnightly or four-weekly—and ensure that their pay is fair and falls within the minimum wage regulations. Basic hours might indeed vary, as the Minister said, but the employer must ensure that when these are divided up by the number of pay periods, the average payment paid each month equals at least the minimum wage. For workers who work on, for example, bank holidays and receive premium payments, the rules currently do not allow for premium payment arrangements in respect of a worker’s basic hours. As I understand it, the regulations rectify this.

Finally, could the Minister elaborate on the relevance of the calculation year? I fully understand the change from the worker’s initial start date as a reference point for calculation to a point where the employer can specify when the year will be calculated from, but does that mean that a worker will need to wait nearly a year to determine whether they have worked any overtime? I am sure this cannot be the case. I would be very grateful if the Minister explained that a little further.

My Lords, the Minister talked about being the best in the world. We on this side of the Committee obviously support that aim. Six countries pay a higher or better national minimum wage than the UK—Australia, Luxembourg, France, Germany, New Zealand and Belgium, according to the House of Commons briefing. We will happily work with Her Majesty’s Government to leapfrog those countries. Could the Minister outline when he believes the UK will surpass those countries?

I gave a number of my questions to the Minister earlier so that we could try to get some answers on to the record. In fact, the noble Baroness has asked many of the technical questions, so I will not repeat them.

Since the introduction of the national minimum wage in 1999, the Government have ordered employers to repay more than £118 million to 835,000 workers. The Government have issued more than £40 million in financial penalties and completed more than 78,000 investigations. A large number of companies and businesses out there are obviously still not paying the national minimum wage. The SI touches on a number of specifics; the intention behind it is that the Government will be able to reduce non-compliance rates since companies will be able to monitor the hours worked by salaried workers and identify potential underpayments of wages. If that can be done, we obviously support it, but how will the Government enforce or monitor this compliance? Does HMRC require any additional resources to cope with these rule changes?

Before the SI was brought forward, a consultation by BEIS took place and of its 60 respondents, 43 agreed that the rules regarding the salaried hours worked—as touched on earlier by the noble Baroness, Lady Burt— caused difficulties when making premium payments. Of these 60 respondents, 23 suggested that salaried hours rules make the national minimum wage calculations complex and increase the risk of non-compliance. If these rules can help to reduce that complication, without penalising the workers, we would obviously be happy to support them. Will the Government be monitoring this to ensure that there are no detriments to the workers?

My Lords, I thank noble Lords for their valuable contributions and for supporting our ambitions in respect of the national minimum wage. I shall respond to the queries in the order in which they were posed. I shall try to answer them as best I can, but if further information becomes available, I will of course write to both the noble Baroness and the noble Lord.

The noble Baroness, Lady Burt, asked whether a worker needs to wait a year to work out whether they have been paid overtime. The answer is no. The flexibility to change the calculation year is technical only. We do not anticipate any detriment to the worker in that area. The noble Baroness also asked whether performance bonuses are excluded from the calculation of minimum wage pay. No, they are included.

I thank the noble Lord, Lord McNicol, for giving me prior notice of some of the questions he was going to pose—it certainly makes my life a little easier. He asked when the UK would surpass other countries’ minimum wage. As he pointed out, we are already in the leading pack internationally on the minimum wage, but the United Kingdom’s ambition to reach 66% of median earnings is unique. The noble Lord will be glad to hear that the increased rates in the living wage will affect more than 2 million workers.

The noble Lord asked whether HMRC would need extra resources to enforce the regulations. As I said earlier, we are committed to cracking down on employers who pay below the national minimum wage or national living wage. The doubling of funding to £27.4 million for 2019-20 for the Government’s minimum wage enforcement compliance centres allows us to do just that, while helping employers to ensure compliance without the need for enforcement. Not only does HMRC follow up on every worker complaint that it receives but it undertakes targeted enforcement for businesses and sectors with a high risk of non-compliance. Such targeting is really important. Additional funding allows HMRC also to undertake activities to educate employers into compliance—from proactively visiting new small businesses to delivering webinars on issues where employers commonly trip up. In 2018-19, HMRC used additional funding to recruit an extra 124 staff deployed on minimum wage enforcement. In the same year, it identified a record £24.4 million in arrears owed to more than 220,000 workers who were underpaid in respect of the national minimum wage or the national living wage and issued £17 million in penalties.

In response to one of my questions, the Minister said the performance bonus is included in the minimum wage calculation. If a worker does not earn a bonus, does this mean they could earn less than the minimum wage? Surely the point of a bonus is that it is in addition to the minimum wage.

No, they could not earn less than the minimum wage.

I commend these regulations to the Committee.

Motion agreed.