Since our blog post on the UK Government’s crackdown on the use of un-paid interns, there have been further developments regarding the National Minimum Wage (“NMW”) scheme. In October 2013, restrictions will be stripped back making it easier for an employer who breaks NMW law to be publicly named and shamed.

Under the current scheme, the Pay and Work Rights Helpline refers complaints about non-compliance to HMRC. Many companies – including those in the fashion industry, where unpaid internships are commonplace – have been investigated by HMRC under the scheme and handed notices of underpayments. Between 2012 and 2013, HMRC identified 736 employers in breach of NMW obligations, which led to the recovery of £3.9 million unpaid wages to over 26,500 workers. However, to date, only one employer has been publicly named by the UK Government Department for Business, Innovation & Skills (“BIS”) for non-compliance.

Before HMRC can refer an employer to BIS to be publicly named, the employer must:

  •  have met one of seven criteria (for example, knowingly or deliberately failing to comply with NMW obligations, or delaying or obstructing a NMW compliance officer), and
  •  owe a minimum of at least £2000 and the average worker at least £500.

Under the new scheme, restrictions will be removed so that any employer who flouts NMW law can be named. BIS hopes that relaxing restrictions so that more employers are named will deter other employers from being tempted not to pay NMW.

Financial penalties will continue to be imposed for breaches of the NMW rules.  An employer can be ordered to pay arrears of wages at the current rate of NMW and penalties of a minimum of £100 and a maximum of £5,000. Employers have a right to appeal against a penalty. However, if an employer fails to appeal, or appeals unsuccessfully, in addition to being handed financial penalties, it will also be considered for naming.

Unless the employer demonstrates that naming by BIS carries a risk of personal harm to an individual or is not in the public interest, BIS will name the employer in a press release.

Brands that have a policy or practice of hiring unpaid interns should review their approach carefully, in light of the reputational risk of being publicly named and shamed for failure to pay the NMW.