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An update to the national minimum wage

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From the start of this month, the national minimum wage for workers aged 25 and over increased to £7.50. A recent case provides a timely reminder for company directors of the personal consequences of failing to meet this requirement by underpaying your workers.  The case saw the director of Cygnets to Swans Limited being disqualified from acting as a director for 6 years.

The national minimum wage

The concept of a national minimum wage was introduced in the UK on 1 April 1999. Since that date, the law has set out a minimum hourly rate of pay to which most workers are entitled. There are actually five different rates depending on the category of worker with the highest rate, the ‘National Living Wage’, applying to those aged 25 or more (this is different to the voluntary minimum ‘Living Wage’ campaigned for by the Living Wage Foundation according to the basic cost of living). Complying with the requirements is not always straightforward as there are complex rules for determining which pay and benefits count in the calculation and exactly how many hours have been worked. This may have led to the problems at Cygnets to Swans Limited.

The facts

Joanne Ward was the sole shareholder and director of the company which operated a nursery based in Manchester. Routine checks by HMRC’s national minimum wage enforcement officers revealed that 12 employees had not been paid the minimum wage dating back to 2010, with the total underpayments adding up to almost £12,000. The company was therefore issued with a £5,000 penalty, the maximum fine at the time. Three years later the company went into liquidation owing over £65,000 including the fine which remained outstanding.

It was discovered that whilst Ms Ward was not paying staff the minimum wage, she had received personal benefits from the company totaling almost £160,000 in the form of wages, dividends and an overdrawn directors’ loan account.

In proceedings associated with the company’s liquidation, Ms Ward was disqualified from being a director and gave an undertaking to the Insolvency Service not to manage or control a company for six years.

The lesson

A director of a company is subject to a number of statutory duties, requirements and restrictions. Breaching any of these can result in an individual being disqualified from acting as a director and in many cases can lead to the director incurring personal liability.  Robert Clarke from the Insolvency Service commented in this case that ‘Not paying staff the national minimum wage is a clear breach of a director’s duties… and this should serve as a warning to other directors who are tempted to underpay staff’.

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