Public and Commercial Services Union

PCS response to DTI consultation, August 2007

PCS is the largest trade union representing civil servants, and also has 10% of its 325,000 members in the private sector.

We have agency workers amongst our membership in the civil service and the private sector.

We represent workers receiving the national minimum wage and we represent those that are involved in enforcing the legislation on national minimum wage and implement agency standards.

Our response is in two sections.

The first part is on the national minimum wage, and the second on employment agency standards enforcement.

Section one: national minimum wage

PCS welcomes the opportunity to comment on the DTI’s consultation on fair calculation of arrears of the national minimum wage to workers suffering from underpayment and just penalties on employers breaching the national minimum wage. PCS are submitting comments both as the union representing workers who may be earning the national minimum wage and as the union representing those that enforce the legislation.

This consultation addresses two issues in relation to national minimum wage:

1. Ensuring that workers who are underpaid the national minimum wage receive fair arrears which are calculated so that workers do not lose out in real terms as a result of that initial underpayment

2. Ensuring that a simple, effective penalty regime is in place to encourage employers to pay the national minimum wage where it is due from the outset

There are a variety of proposals offered in the consultation document and the first one of ‘do nothing’ is not a realistic option.

Strict enforcement is important to uphold the practice of the national minimum wage and get across to employers that it is a right for workers not just a voluntary code.

PCS would argue that compliance officers should retain the flexibility and discretion that would enable them to prioritize an early pay out for workers.

While it is important that there are clear rules governing the national minimum wage and any breach, compliance officers need to be able to make judgments based on transparent and justified criteria about action in specific cases.

Part 1- fair arrears

There are some problems with Option C (para 20 26). This would not adequately compensate workers for delay if a future Government froze national minimum wage, or failed to put it up in line with inflation (or even reduced it!).

It would bring big increases when there were generous increases in national minimum wage (like the 35p in Oct 2004, but less when there were smaller increases (10p in Oct 2002). And we would want to know how it would interact with the young workers rates.

Para 24 highlights an anomaly. As we go past the national minimum wage uplift in October it would look from the employer’s point of view very much like they had just incurred a penalty. A worker might be tempted to delay answering a letter until the new rate was triggered for the arrears, and employers might accuse the enforcement agency of doing the same.

The employer has a strong incentive to settle things by October but once that date has passed they can afford to delay up to a year.

The anomalies would look much more serious from the point of view of the enforcement agency.

Each October the compliance team would be faced with re calculating every calculation that had sent out on cases that were still working, for reasons that would look entirely arbitrary to the employer.

Option B, interest on arrears, paras 14 to 19

The suggestion of interest was mooted in the Low Pay Commission’s 2005 report.

The principle of interest to mitigate against loss of purchasing power is the most easily understood of the options.

It clearly addresses the issue of the employer rather than the worker having had the use of the money all this time. Para 15 points out that the actual computation of interest is complicated. However it is able to be computerised.

Compliance officers should have a programme that will state the interest due once the arrears and dates are input. There is no reason why such a programme should not be made available to the public on a Government website.

It is the view of PCS that the tax problems at Para 18 are not insurmountable. The legislation could make this interest exempt from tax (there is a precedent for exemption in the old NSB accounts). It could be left untaxed by means of an Extra Statutory Concession. The Government could announce generous de minimis limits below which it would not attempt to collect tax on this interest.

Interest is the least likely of all the options to be mistaken for a penalty.

Part II- penalties

Q B1, we agree that far too few penalties have been imposed up to now. These proposals will all be easy to enforce for employers who are openly paying hourly rates that are less than NMW. However, such employers make up only a very small minority of the cases taken up by the enforcement agency.

Usually there is an issue about the adequacy of the records kept by the employer, and their deficiencies make it very difficult to quantify the underpayment. Disputes about the number of hours worked are far more common than disputes about the hourly rate or the amount paid. The amount of hours worked is often ambiguous, and there can be genuine misunderstandings about what constitutes working time. national minimum wage cases involving larger employers often involve technical legal challenges about the interpretation of the national minimum wage legislation.

In all but the few straightforward refusal to pay cases the insistence on a penalty may make it more difficult to secure the employer's agreement that an underpayment has occurred and that arrears should be paid. In some cases on refusal to pay, it may be useful for employers to have a personal liability to pay to encourage compliance.

Para 48 asks if there are any circumstances that an automatic penalty should not apply.

It is the view of PCS that compliance officers should have discretion to waive or mitigate penalties, with justifiable reasons. The circumstances of cases rarely fit a standard pattern.

For instance, an employer may have a contracted hourly rate that is well above NMW, but potential underpayments arise because more hours appear to be worked than are paid for. Such an employer may offer to pay for extra hours at the contractual hourly rate that is higher than NMW.

This would lead to more arrears for the workers than having their pay made up to national minimum wage and a penalty charged.

Sometimes there are great difficulties in quantifying hours and an employer may agree to pay for all the hours an employee might have worked. For instance, the employer may agree to pay for all the hours that a shop is open even though they claim there were breaks or the worker did not work all the way through.

An employer might agree to pay door-to-door canvassers for all the hours that their license covers them to work in their working day rather than set up complex arrangements to monitor the number of hours they actually work. This would be more advantageous to the worker than fighting a tribunal case to establish the lower number of hours actually worked and then charging the employer a penalty.

Compliance officers often encounter situations where no worker is prepared to give evidence to a tribunal that they are underpaid, while there are workers who say what the boss has told them to even if the story is highly implausible.

The compliance officer faces the problem that workers may appear as hostile witnesses at a tribunal, and they has to take into account the possibility that the employer is telling the truth. It is helpful to have the option of agreeing a pay rise that makes the wage unambiguously over national minimum wage and agreeing arrears on a without prejudice basis where the employer still maintains that they have not broken the law.

Compliance officers currently settle the vast majority of national minimum wage cases with arrears without there being any appeal to an employment tribunal.

Tribunals are slow and costly, and both delay the worker receiving their money and take an enormous commitment of resources by the enforcement agency. It would therefore be unfortunate if the automatic imposition of penalties led to a drastic upsurge in the proportion of cases going to tribunal.

Some employers genuinely will not be able to pay the arrears and a penalty all in one go, and it will not always be in the worker's interest to drive them out of business.

Escalation and appeals

Currently the penalty is used as a means to persuade the employer to avoid delay because it is expressed as an amount per day.

We would therefore like to see an increase in the amount of penalty if arrears are not paid in good time.

The penalty currently cuts in and escalates by the day before the appeal against an enforcement notice has been settled. It is not clear how an escalating penalty will interact with an employer challenging the amount of the arrears.

Currently there can be a period of correspondence when the hours worked or amount due are discussed before there is any thought of issuing an enforcement notice. We need to have time for the employer to check figures prepared by the compliance officer and vice versa. There may be matters of fact to clear up; for instance the employer may recall that a worker had unusually low wages in a particular week because there was an exceptional reason for working fewer hours that week.

The compliance officer's calculations might include weeks when a worker was on holiday. Even if the worker is owed exactly the same in arrears of holiday pay as the arrears of national minimum wage calculated for that week the employer has every right to produce his holiday records and ask for that week to be excluded from the national minimum wage calculations.

Perhaps escalation should be triggered if the employer fails to pay by an agreed date, or fails to provide information with in a reasonable deadline.

Lack of records

Inadequate or false records can be dealt with by criminal prosecution. This is incredibly time consuming, and the pursuit of arrears for workers may have to be dropped to enable prosecution to take place.

HMRC is at long last undertaking some national minimum wage prosecutions, but is unlikely to have the resources for more than about six prosecution cases for all the national minimum wage offences per year. The standard of proof for a criminal prosecution is higher than that required for securing arrears through the civil route.

We are likely to be left with a lot of employers who insist that they are paying at least NMW, but who do not have good enough records to prove it. Very few of these will be suitable for prosecution. Perhaps the possibility of a fixed penalty should be triggered when it can be shown that the records are insufficient to demonstrate national minimum wage is being paid as well as when an actual underpayment is proven.

Further general comments

Paras 3 and 38 welcome comments on the enforcement of AMW and national minimum wage in the agricultural sector.

PCS would want to highlight that the proposals will make very little difference) here while the Government Department responsible (originally DEFRA has committed too few resources to these issues. The amount of staff working on minimum wages in that sector is negligible. Unlike HMRC, they do no pro active work but only respond to complaints.

PCS welcomes the robust approach being suggested for national minimum wage but notes the complete lack of similar sanctions for the underpayment of holiday pay.

There is no enforcement agency for holiday pay, and HMRC national minimum wage compliance officers have to ignore the holiday pay discrepancies they find because they have no powers.

The only remedy is for the worker to take their own tribunal case, which most would find intimidating, and even then the matter is only set right for that worker, not the whole workforce. Far from there being any penalty the workers do not even get all of the arrears of holiday pay that they are owed, with the arrears restricted to the current leave year.

Although, PCS welcomes this consultation we are concerned that the recent improvements to the enforcement budget still fall short of Gordon Brown’s 2006 promise of increasing numbers by 50%. We need increased resources to have available sufficient numbers of Compliance Officers especially in areas where proactive enforcement is needed.

PCS would like to see greater awareness of the national minimum wage with notices in workplaces and advice printed on wage slips.

Class action cases allowing trade unions to take action on behalf of groups of individuals would also be useful in ensuring that the national minimum wage is adhered to.

Section two: employment agency standards enforcement

We welcome the opportunity to respond to this consultation.

The consultation aim is to ensure that an effective enforcement regime is in place for dealing with the minority of employment agencies that do not comply with agency legislation

We welcome the proposed measures but have concerns about whether they go far enough or whether they will be effective. We also have wider concerns about agency workers and their employment situation.

Agency workers do not have adequate employment rights, and we believe that they should be given proper protection along the lines of the EU temporary agency worker directive. We submitted our detailed views in the consultation on protecting vulnerable agency workers in May this year.

Resources

It is essential that the Employment Agency Standards Inspectorate is adequately resourced, both in terms of staff and financing, as otherwise enforcement cannot be effective. Imposing severe penalties is pointless if offences don't go to court because there are inadequate resources to fund inspections, investigations and legal cases.

The resources should be adequate for the Inspectorate to do the work of enforcement, and also to ensure that agency workers are aware of their existence and of their rights. As vulnerable workers, agency workers are often not in a good position to complain about poor treatment, even illegal poor treatment, and might not be aware of what is illegal.

Licensing

We believe there is a strong case for licensing agencies. We would put forward the Gangmasters Licensing Authority as a possible model.

Here agencies have to sign up to minimum standards in order to get and retain a licence. Having to register to operate would enable the Inspectorate to obtain a complete picture of those operating (legally) in the sector and would also help address the specific problem of rogue operators flouting the ban on operating an employment agency.

We believe that licensing should be a key part of effective enforcement.