HMRC have announced a change in approach when enforcing national minimum wage (NMW) liabilities following a TUPE transfer. The new employer will now be liable for all NMW liabilities, including the full penalty amount, even when it is referable to underpayments that took place before the transfer.
Where it is found that workers have received an underpayment of the NMW, HMRC have the ability to impose financial penalties on the employer as well as requiring them to pay the arrears to the affected employees. Previously, where there had been a transfer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) and NMW liabilities arose, HMRC held the transferor (the old employer) liable for penalties relating to arrears incurred prior to the transfer date. However, from 2 July 2018, HMRC has announced that all NMW liabilities, including the full penalty amount, will be imposed on the transferee (the new employer).
The penalty imposed on employers for underpayment of the NMW can be significant and equate to a maximum of £20,000 per worker and up to 200% of the underpayment.
Arrears of pay are calculated using a formula taking into account the current rate of the NMW rather than the applicable rate at the time of the underpayment. This is designed to compensate workers for the length of time that the arrears have been outstanding. The financial penalties are also calculated according to this higher figure. This means that transferee employers could be required to pay penalties at a rate more costly than might be envisaged.
When conducting due diligence, prospective transferees should adopt a cautious approach in exploring whether the transferor has complied with their NMW obligations and include robust indemnity protection where an issue is identified.