Employment Bill [HL]

I am grateful to the noble Baroness who has started our—brief, I hope—discussion of the national minimum wage clauses in the Bill. They are important clauses. Clause 8 provides a new, fairer method of calculating the amount of arrears of national minimum wage due to a worker. It provides that the arrears will be calculated in relation to the national minimum wage rate in force on the date they are repaid as opposed to the rate in force when the work was done. That goes some way to making good the loss of earning power the worker suffered by remaining underpaid over the period he was without his national minimum wage payment. Amendment No. 24A, tabled in the name of the noble Baroness, removes subsection (8) of Clause 8, which provides that the new method of calculating arrears will apply to all arrears owed to underpaid workers when the provision comes into force. It would prevent the new method of calculating arrears contained in Clause 8 being used to help workers underpaid before commencement. We recognise that applying certain sanctions to employers for non-compliance before commencement has the potential to cause unfairness. That is why we have not taken that approach with the rest of the changes to the national minimum wage regime. For example, the penalty contained in the new notice of underpayment in Clause 9 will not apply to an underpayment of national minimum wage before commencement. However, we considered long and carefully whether the provisions in Clause 8 should apply retrospectively and we concluded that, in this case, it is right because the aim of Clause 8 is not to penalise employers; rather, it is to ensure the fairest outcome for workers who have been underpaid. Amendment No. 24A would deny underpaid workers arrears calculated under the new method until some considerable time after Clause 8 comes into effect. Moreover, it would have no impact on outstanding arrears, which could go back as far as six years. If someone had been underpaid for six years, it is surely right that there should be some allowance for the increase in the cost of living since the underpayments began. If Clause 8 were to come into force on 1 October 2008, at the same time as the annual uprating of the national minimum wage, the amendment would mean that a worker who was underpaid after commencement—that is, from 1 October 2008—would not receive any additional remuneration until at least 1 October 2009. Under current legislation and under Clause 9, a notice of underpayment may include a pay reference period ending up to six years before the date of service of the notice. Under the amendment, a worker whose employer had failed to pay outstanding arrears for several years before commencement would not be entitled to any uplift to take account of the years that he was without the money. A further effect of Amendment No. 24A would be to increase the complexity of the calculation of arrears for employers and workers, as there would be two arrears regimes in force at the same time. We do not think that that is right. We recognise that the effect of subsection (8) would be to impose an additional burden for employers in those cases where the underpayment has been significant or has gone on for a period of time. However, this burden will apply only to those employers who have failed to make good the arrears owed to their underpaid workers by commencement. Employers would have to pay an additional amount as remuneration only if the arrears are repaid in a different national minimum wage rate year from the one in which the underpayment occurred. On the other hand—and this is significant—it is open to employers, aware of the proposed changes to the law, to repay arrears in accordance with the current law until Clause 8 comes into force. If an employer repays his workers and becomes compliant with the NMW legislation at any time before commencement, he will remain unaffected by Clause 8. We will do our best to ensure that employers are aware of the changes that the Bill will bring in to the national minimum wage regime well before they come into effect. We are currently working with stakeholders to develop guidance to ensure that everyone is fully aware of the changes the new legislation will bring, and what they need to do to be compliant well before those changes come into effect. In short, we do not believe that it is unfair that the provisions in Clause 8 are retrospective. The employer has a responsibility to pay the correct amount of pay at the correct time. The changes contained in Clause 8 will have an effect only on employers who are non-compliant with the national minimum wage. Workers paid below the national minimum wage are likely to suffer financial hardship even if arrears are eventually paid, if no account is taken of the effect of the underpayment in real terms. It is right that the repayment of arrears to a worker should take account of the length of time the arrears have been outstanding. Our fear is that if Amendment No. 24A were carried, it would bite hardest on those workers whose arrears have been outstanding for a longer period—that is, frankly, those who have been treated the worst by their employers. For those reasons—and I hope that I have not gone on at too much length—we believe that what is in the Bill is the right way to deal with this difficult problem. Therefore, I invite the noble Baroness to withdraw her amendment.