A tribunal has ruled that the department can issue multiple NMW penalty notices so the offending employer can be fined more than the statutory cap

An employment tribunal has found that HMRC was entitled to issue multiple penalty notices – and therefore multiple penalty fines – in the case of underpayments to 2,000 workers supplied by recruitment firm Best Connection Group (BCG) to Sports Direct, so that the employer faced fines in excess of the statutory cap of £20,000.

HMRC, with union Unite, investigated the pay received by workers at Sports Direct’s Shirebrook warehouse site. The workers’ timesheets were downloaded automatically to BCG’s system to generate the payroll figures. The workers received pay per hour at the national minimum wage (NMW). BCG did this for a number of years, supplying an average of 1,500 to 2,000 workers to Sports Direct each week, with the retailer only directly employing around 200 workers at this site.

Despite the automated system recording the workers’ hours, it was established that the workers were underpaid for two reasons. First, if a worker was only a minute late clocking in, the system would default to the next 15-minute period so the worker was not paid at all for an element of their first 15 minutes at work. Second, after a worker clocked off at the end of the day, security searches were conducted; these resulted in long queues and employees remaining on site for, on average, a further 11 minutes each day, working time for which they were not remunerated. These matters were not disputed by BCG or Sports Direct, who worked with HMRC during the investigation to identify the underpayments to both current and previous workers.

Consequences for BCG

The NMW enforcement measures available to HMRC include notices of underpayment, civil penalties, ‘naming and shaming’, recovery of underpayments through tribunals or civil courts (at current NMW rates) and criminal prosecution. In all cases where arrears of NMW are found outstanding at the start of an investigation, a notice of underpayment is issued with a penalty imposed for the employer’s failure. This is regardless of the employer’s explanation or any attempt to catch up with payment arrears. The penalty is currently 200 per cent of the total of the underpayment, subject to a maximum penalty, which was then £20,000 per notice (it is now £20,000 per underpaid worker).

In this case, BCG was required to pay the workers the arrears of pay – £469,273.83 – and faced penalty fines relating to notices of underpayment amounting to £263,628.69.

BCG did not dispute the underpayments and also paid the fine promptly to benefit from the 50 per cent reduction in the penalty levied. However, it appealed against HMRC issuing numerous underpayment notices, which it felt was inconsistent with the statutory cap on such penalties. HMRC explained to BCG that they had grouped the workers into batches, each batch having arrears not exceeding £20,000. The aim was to achieve the maximum penalty by issuing the fewest number of notices.

BCG argued that this was a “deliberate ploy by HMRC” to evade the statutory cap on the amount of the penalty. HMRC had all the information and could have issued one notice. To issue multiple notices was an abuse of power, BCG said.

Tribunal decision

The tribunal finding shows the flexibility of HMRC to issue such notices. The judgment points to the fact that the ability to restrict additional notices was not specified in the legislation. More than one notice should be permitted at any rate for different periods. To avoid the current £20,000 ‘per worker’ cap, HMRC could issue notices for the same worker but covering different periods.

Although the tribunal held that it was “troubling” that the cap was “ineffective”, it appeared that multiple penalty notices could be issued, provided each was capped.

Clare Gilroy-Scott is a partner in the employment team at Goodman Derrick