As reported widely in the press at the start of the year, the supermarket chain Iceland has faced strong action from HMRC relating to National Minimum Wage (“NMW”), with regard to its Christmas Saver Scheme. Broadly, this relates to a scheme in which employees make a genuine choice to have an amount deducted from each pay period during the year, thus receiving a larger amount in time for Christmas). At any time, the employee could change its mind and receive all of the saved amount at once.
Generally, there has been a distinct increase in investigations carried out by HMRC with regards to alleged underpayment of the NMW. The contentious point does not relate to those employers who are simply not paying the required hourly rate, but instead centres on those who have been caught out by very strict interpretations of the law leading to technical (but unintentional) breaches. The ultimate outcome for breaches can be 200% of the underpayment, going back 6 years and public ‘naming and shaming’.
The key question for us as solicitors advising Iceland is whether such deductions are for the employer’s “use and benefit” - it should be noted that HMRC refuse to factor in employee choice or satisfaction with the deductions in deciding whether there is a breach.
In Iceland’s case, this has meant it is facing a potential £40 million penalty despite the company simply taking steps (as encouraged by the government) to avoid its employees having to rely on pay day lenders when it comes to Christmas.
Equally, HMRC has taken a strong approach in a number of different areas which is affecting those in the retail, hospitality, leisure, care home and cleaning industries. Anything from the potential time staff are having to take to perform their job (e.g. security checks before and/or after shifts as found to have happened at Sports Direct) to purchases made in connection with the employment (i.e. whether staff are being required to pay for a uniform, as found to have happened at Primark) is under scrutiny.
The key lesson for employers who could be impacted is to take early action. A review of the position followed by repaying any underpayments to staff would mean that a penalty and the ‘naming and shaming’ are avoided if this is done before HMRC start an investigation. The reputational effects generally cannot be ignored and some companies are facing significant issues in bidding for government work where they have been named and shamed by HMRC for any such breaches.