TUPE Transfers and the National Minimum Wage
By Justine Riccomini, Head of Taxation (Scottish Taxes, Employment and ICAS Tax Community)
26 September 2018
Justine Riccomini explains why employers need to be careful about legacy National Minimum Wage issues inherited from another employer during and after a TUPE Transfer.
A recent brief announcement buried in Agent Update 67 may well have gone unnoticed by many. However, I think it is worthy of mention because of the fearsome reputation linked to all things National Minimum Wage. Most people are now aware that the penalty regime and “naming and shaming” policy adopted under the regulations are particularly punitive and merciless. The recent change to TUPE transfer related penalties does nothing to change this stance – but merely serves to enhance it.
Out with the old
Enforcement proceedings taken in respect of any NMW arrears was originally charged directly to the former employer of workers transferred to an employer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI2006/246) (TUPE).
In with the new
From 2 July 2018, employers and advisers should note that these arrears, together with penalties and associated action such as naming and shaming is now to be taken against the new employer where TUPE is in point. This appears to be the case even where the warranties agreed as part of a M&A deal or straight sale can be shown to be the responsibility of the old employer. The National Minimum Wage Manual was updated on 29 June 2018 to reflect these changes.
Change in HMRC powers, or change in interpretation?
When I read the article in Agent Update 67, I was unsure as to whether this change in “approach” meant a change in tax legislation or a change in interpretation of existing legislation by HMRC. I looked in the legislation (in particular ss. 17,19 & 48) but I was unable to locate anything which specifically awarded specific powers to HMRC to enforce on the new employer where TUPE is in point. So, I wrote to HMRC asking this question and received the following response:
“The note that appeared in the recent Agent Update represents a change in interpretation based on our understanding of the operation of TUPE at this time.”
“Ultimately, only the Courts can establish how Regulation 4(2) of TUPE applies to a Notice of Underpayment issued under s19 of the NMW Act 1998 [as amended from 6 April 2009 by the Employment Act 2008]. However, we consider it likely that, where TUPE applied, a Court would determine that liability for both the arrears owed and the attached penalty would transfer under Regulation 4(2) of TUPE.”
Deal or no deal
Ultimately, although this represents a change in interpretation by HMRC rather than a change in powers, employers and their advisers need to be extremely careful about NMW issues generally. TUPE is a highly complicated affair at the best of times, but those involved in sales and business transfers, mergers and acquisitions now need to be vigilant that the due diligence process and subsequent deal takes account of NMW issues and pays particular attention to the pay, terms and conditions and associated benefits of any workers covered by TUPE transfer regulations.
No employer wants to find themselves the subject of court action - and especially not in an NMW scenario.
Further information on TUPE can be found on the ACAS website.
More on enforcement of the national minimum wage including penalties can be found on the GOV.UK website.