HMRC ‘demonises’ small firms who underpay staff

By James Ridler contact

- Last updated on GMT

The HMRC should do more to educate small firms on the intricacies of pay laws, according to Ananda Foods and Image on Food
The HMRC should do more to educate small firms on the intricacies of pay laws, according to Ananda Foods and Image on Food
Her Majesty’s Revenue and Customs (HMRC) should do more to educate small and medium-sized businesses on staff payment regulations, instead of “demonising them” for underpayment.

That’s the view of food businesses named and shamed in a report on employers, aimed at revealing which of them paid workers below the National Living and Minimum Wage.

Gingerbread manufacturer Image on Food was one of the companies named in this year’s report for underpaying its staff under the HMRC’s rules. However, according to managing director Tim Hopcroft, the company was unaware that this was the case.

As a seasonal business, Image’s staff would work less hours from April through to June, before production ramps up to cater for the busier Halloween and Christmas periods. To counter the fact that its staff would earn less in the slower period, Image would average out their pay over the year.

“Say, for example, you’re on a 30-hour-a-week contract, if they worked 25 hours in the quiet time, we paid them for 30 hours and if they worked 35 hours in the busy time, they’d have been pre-paid,” ​said Hopcroft. “We were led to believe that was acceptable.”

But when HMRC came to check reports of underpayment at the business, they rejected the reasoning given by Hopcroft and his team, he claimed. The company was forced to change the way that they paid their staff.

‘Named and shamed’

“We’ve had to change our whole payroll system just to accommodate all this and, to be honest, it’s the staff who are worse off,” ​added Hopcroft. “We’ve been named and shamed and we feel very frustrated.”

Image tried to fight the ruling. It argued that it had paid its staff upfront to provide them with a consistent wage throughout the year, but the HMRC took the underpayment during the busier period of the year as an isolated incident, which it deemed unacceptable.

“We’ve spent between £10k and £12k trying to fight this,”​ said Hopcroft. “We then finally came to an arrangement and we paid the staff again – even those who had left the company – because this had to be backdated three years.

“It has left a nasty taste in the mouth. We did what we felt was the right thing for our staff and no one said we couldn’t do that, or that we were in breach of regulations.”

In the end, Image attributed the issues to differing interpretations of the law and a lack of understanding.

‘Very grey area’

“HMRC has got a job to do, but there might be people out there who are doing exactly what we’ve done, not aware that this situation is a very grey area in the HMRC world and they could also end up how we ended up.”

Another company that fell foul of a lack of communication on payment laws was vegan confectionery producer Anandas Foods. The company wound up named and shamed on the HMRC’s list for underpaying an apprentice.

Director Russell Townend told Food Manufacture​: “We took on an apprentice under the guidance of an agency, who advised us of the rates of pay etc. We were a small new business, under pressure and in a rapidly growing market for our products, so we accepted whatever instruction the agency provided.

“We increased the apprentice’s wage incrementally to just below a full wage as the weeks progressed, as we believed the set amount outlined by the government was too low. The agency told us this was ok to do.”

The apprentice had to continue training beyond their original 12-month period, but Anandas was not made aware that it was no longer allowed to pay them at the lower rate past this period.

“What the agency did not tell us was the apprentice rate of pay should only be paid for the 12 set months, even if the official training carried on beyond this and the apprentice was not yet capable of doing a full-time job,”​ added Townend.

‘Considered irrelevant’

“We explained that we were never informed of the 12-month issue by the agency. This was considered irrelevant by the HMRC. Fortunately, because we had paid our apprentice much more than the basic minimum, the actual amount of underpayment was small.”

The main issue, as Townend saw it, was the lack of information provided to employers and the lack of awareness and knowledgeable advice of the government-approved training agency.

Townend said that trying to dig up the information oneself was difficult, and questioned why the full picture not easily and obviously available.

“For someone new to commerce, as I was, it was a minefield,”​ he said. “If HMRC genuinely wish to reduce underpayments, surely proactive advice to employers and a comprehensive – and comprehensible – information program make more sense than the demonising of small employers​.

“I understand why it may be in the public interest to name some huge employers, but how are the public served by naming and shaming us?”

A full report of the companies that have been reported to have underpaid their staff can be found here.

Related topics: Regulation

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