Why is the care sector failing to pay the minimum wage?

Posted: 26/03/2015

As the Department for Business, Innovation and Skills (BIS) and HMRC launches investigations into the remuneration practices of around 100 care companies, including six of the largest employers in the care sector, Care and Support Minister Norman Lamb says that these are “just the tip of the iceberg.”

The news follows Business Secretary Vince Cable’s announcement that the Low Pay Commission recommended an above-inflation 3% increase in National Minimum Wage (NMW) for workers over the age of 21. The proposed increased in NMW would be worth an additional £416 a year to a full-time worker. However, Business Minister Jo Swinson suggested that workers in the care sector are unlikely to see that benefit, with care singled out by BIS as an area with “particular problems.”

But why is the focus on care in particular? In February 2015, BIS named 70 employers across all sectors that have failed to meet their NMW requirements. Care provider, East Midlands Crossroads (EMC), was the most prolific of these offenders having neglected to pay a total of £37,592 to 184 workers. EMC consequently bore the brunt of the media’s attention and swiftly released a statement blaming its underpayments on NMW legislation being “complex, in parts ambiguous, and open to interpretation.” 

This is not an unreasonable assertion. In January 2015, BIS published the Government’s response to consultation on the new draft NMW Regulations. These aim to clarify NMW rules and make them easier for employers to follow. Around a third of respondents to the consultation were care providers and 82% of respondents felt that some provisions in the draft Regulations did not work or were at least unclear. Several factors such as time asleep for sleep-in workers and travel time for workers required to travel between assignments are plainly applicable to the care sector and were prominently cited as confusing NMW calculations.

The new Regulations will come into force on 6 April 2015. In February 2015, BIS released new guidance which seeks to address the many areas of confusion in view of the incoming Regulations and further guidance may follow in April.

The maximum penalty for flouting the NMW rules is currently £20,000 per employer. However, provisions in the draft Small Business, Enterprise and Employment Bill could allow the Government to introduce fines of up to £20,000 per underpaid employee. In cases such as EMC’s, this could have a catastrophic effect on company finances. 

Research by Alex Brooks, a trainee solicitor in Penningtons Manches’ employment team.

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