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National minimum wage

Iceland faces £21 million bill for minimum wage breach

Iceland Foods Ltd is apparently facing a potential £21 million bill for underpayment of the national minimum wage. What’s the issue here and where has Iceland gone wrong?

Iceland runs a voluntary savings scheme for its staff, its Christmas Club scheme. The scheme allows participating employees to put aside money from their weekly wages to save for the festive season. The money is paid into a separate, ring-fenced bank account administered by trustees and it’s then paid back to staff at a later date (although they can, in fact, reclaim the money at any time, not just in the run up to Christmas). However, the money is deducted directly from employees’ wages, taking their pay below the national minimum wage (NMW) or national living wage (NLW) in some cases. HMRC is now investigating Iceland for breaching the NMW legislation and has accused it of underpaying staff by about £3.5 million per year over a six-year period. Iceland has said that it intends to challenge any subsequent HMRC decision that goes against it.

Where NMW rules are breached, as well as having to pay the back pay, employers also face a penalty of up to 200% of the pay arrears, capped at £20,000 per worker, and they risk being “named and shamed” by the government. Therefore, as well as approximately £21 million in back pay, Iceland could face significant fines.

If you want to offer staff savings schemes to your workers where they’re paid at or close to NMW/NLW rates, to establish a scheme in line with the law you simply need to get your workers to pay into that scheme after they’ve been paid, rather than deducting the money from their wages beforehand.

The legal position on salary sacrifice schemes, potentially also including these types of saving schemes, might change in the future (salary sacrifice schemes currently can’t take workers’ pay below the NMW/NLW rates). The government is consulting until 1 March 2019 on the practical operation of salary sacrifice schemes in relation to workers on the NMW. The consultation explores whether the rules unfairly penalise employers without generating sufficient benefit for workers, and whether employers have been withdrawing salary sacrifice schemes to avoid non-compliance with NMW rules.

Iceland made deductions from the wages of those employees who wanted to voluntarily participate in its Christmas Club savings scheme. However, this meant that the employees’ wages then fell below NMW rates. The problem could have been avoided had it arranged for its employees to pay into the savings scheme after they had been paid, rather than by making wage deductions beforehand.

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