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Session 1997-98
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Arrangement of Clauses (Contents)

National Minimum Wage Bill
 
 EXPLANATORY AND FINANCIAL MEMORANDUM
 
  The Bill contains regulation making powers enabling the Secretary of State to set a national minimum wage and prescribe the method to be used in determining whether a person has been paid at least the amount set.
 
  It gives the Secretary of State the power to establish a statutory Low Pay Commission to recommend the level of the national minimum wage, how it should be determined whether a person has been paid at least the amount set, and other matters relating to the national minimum wage. It also provides that the non-statutory Low Pay Commission, already established administratively by the Secretary of State, is to be treated as the statutory Low Pay Commission for these purposes unless the Secretary of State determines otherwise.
 
  The Bill provides for the appointment of officers to enforce the national minimum wage and otherwise for its civil enforcement; the Bill also makes it an offence to refuse or wilfully neglect to pay a person at least at the rate of the national minimum wage.
 
  Clause 1 requires those who qualify for the national minimum wage to be remunerated in respect of each pay reference period at a rate which is not less than the level set. The clause also specifies that the national minimum wage applies to workers who work or ordinarily work in the United Kingdom and states that it is to be a single hourly rate. The pay reference period and the single hourly rate are to be prescribed by the Secretary of State.
 
  Clause 2 empowers the Secretary of State to make regulations specifying how the pay of those entitled to the national minimum wage is to be calculated for the purpose of ascertaining whether they have been remunerated at a rate not less than the national minimum wage.
 
  Clause 3 empowers the Secretary of State to make regulations excluding descriptions of those aged under 26 from the national minimum wage or providing that they are entitled to a different rate. A description must not, however, be one that treats persons differently in relation to different areas, different sectors of employment, undertakings of different sizes or different occupations.
 
  Clause 4 empowers the Secretary of State, by regulations, to amend clause 3 by adding further descriptions of persons to those who may be subject to the regulation making power in that clause.
 
  Clause 5 requires the Secretary of State to refer certain matters to the Low Pay Commission before exercising the regulation making powers in clauses 1 and 2. The matters include what the rate should be, what method should be used to calculate whether it has been paid, and what, if any, use should be made of the regulation making power in clause 3.
 
  The clause requires the Low Pay Commission to consider and report on those matters to the Prime Minister and the Secretary of State making recommendations.
 
  The clause also provides that if the Secretary of State decides not to make regulations implementing some or all of the Commission's recommendations the Secretary of State must lay a report before each House of Parliament stating the reasons for that decision.
 
  Clause 6 enables the Secretary of State to refer matters relating to the Act to the Commission at any time and requires the Commission to consider them and report to the Prime Minister and the Secretary of State making recommendations.
 
  Clause 7 prescribes the detail of the procedures to be followed when the Secretary of State makes a reference to the Commission. The Commission must consult organisations representative of employers and representative of workers and when it reports, the Secretary of State must lay a copy of the report before each House of Parliament and arrange for it to be published.
 
  Clause 8 treats the non-statutory Low Pay Commission as the statutory Low Pay Commission for the purposes of the Act, contains technical provisions resulting from treating the non-statutory Commission in this way and provides for the establishment of a statutory Low Pay Commission. The clause provides that Schedule 1 is to have effect with respect to the constitution and proceedings of the statutory Commission.
 
  Clause 9 empowers the Secretary of State, by regulations, to require employers to keep such records for the purposes of the Bill as may be prescribed.
 
  Clause 10 gives workers who have reasonable grounds to believe that they may not have been paid the national minimum wage the right, by notice, to require their employer to produce the relevant records, and to inspect and copy them. It also gives workers the right to be accompanied by another person when inspecting the records.
 
  Clause 11 gives workers the right to complain to an industrial tribunal where the employer has failed to produce the relevant records or otherwise failed to comply with clause 10.
 
  Clause 12 empowers regulations to be made conferring on persons entitled to the national minimum wage who are not employees the right to be given a written statement, with or before each payment of remuneration, containing information about the national minimum wage and to assist them to know whether they have been paid the minimum for the period to which the payment relates. Existing powers in the Employment Rights Act 1996 make it possible to require such information to be included in the itemised pay statements of employees.
 
  Clause 13 empowers the Secretary of State to appoint officers for the purpose of enforcing certain provisions of the Bill.
 
  Clause 14 confers powers on officers appointed under clause 13; they may require the production of records kept by employers for the purposes of the Bill, require an explanation of such records, require certain additional information to be given and enter the premises of employers and certain others for those purposes.
 
  Clause 15 gives to workers paid less than the national minimum wage a contractual entitlement to recover the difference between what they have been paid and the national minimum wage.
 
  Clause 16 treats those who are entitled to the national minimum wage but do not have contracts which make them "workers" as if they had such contracts, and by this means entitles them to the difference mentioned in clause 15 and to recover that difference by complaint to an industrial tribunal under Part II of the Employment Rights Act 1996 (protection of wages) or by action for breach of contract in other civil proceedings.
 
  Clause 17 enables an officer appointed under clause 13 who is of the opinion that an employer has been paying workers less than the national minimum wage, to serve an enforcement notice on the employer requiring him to pay the workers at a rate at least equal to the national minimum wage; the notice may include a requirement to pay workers the national minimum wage in respect of past periods in respect of which the employer has not paid it. The clause also gives an employer served with an enforcement notice a right of appeal to an industrial tribunal.
 
  Clause 18 provides that if the employer does not comply with an enforcement notice an officer, acting on behalf of one or more workers, may complain to an industrial tribunal or take other civil proceedings to recover the difference between what the worker has been paid and the national minimum wage.
 
  Clause 19 provides that if an officer is satisfied that an employer has not complied with an enforcement notice he may serve a penalty notice on the employer requiring him to pay a penalty in respect of a specified period of non-payment falling within a period of non-payment specified in the enforcement notice. The penalty consists of twice the hourly rate set for the national minimum wage for each day of non-compliance and is paid to the Secretary of State.
 
  Clause 20 gives a person on whom a penalty notice is served a right to appeal against it to an industrial tribunal.
 
  Clause 21 gives workers the right not to be subjected to any detriment by their employer for using the provisions of the Bill.
 
  Clause 22 provides that the remedy for infringement of the right given by clause 21 is by complaint to an industrial tribunal and contains ancillary provisions about the enforcement of the right.
 
  Clauses 23 and 24 provide, as regards Great Britain and Northern Ireland respectively, that the dismissal of an employee for using the provisions of the Bill is automatically an unfair dismissal.
 
  Clause 25 has the effect that proceedings on complaints to an industrial tribunal under clause 11 and on appeals to an industrial tribunal under clauses 17 and 20 are to be heard by a tribunal consisting of a chairman sitting alone.
 
  Clause 26 has the effect that the burden of proof is placed on the employer (i) where a question arises in civil proceedings as to whether an individual qualifies or qualified for the national minimum wage, and (ii) where a person complains under Part II of the Employment Rights Act 1996 that an underpayment of the national minimum wage amounts to an unauthorised deduction, or brings other civil proceedings to recover such an underpayment, and the question arises whether the person was remunerated at less than the national minimum wage.
 
  Clause 27 provides for complaints to industrial tribunals under the provisions of the Bill to be conciliated by conciliation officers appointed by the Advisory, Conciliation and Arbitration Service or, in Northern Ireland, to be conciliated by the Labour Relations Agency.
 
  Clause 28 makes it an offence (i) to refuse or wilfully neglect to pay a worker at a rate not less than the national minimum wage, (ii) to fail to keep records in accordance with regulations made under clause 9, (iii) knowingly to keep false records, (iv) knowingly to produce or furnish false records or other information, and (v) intentionally to delay or obstruct an officer appointed under clause 13 or to refuse to answer a question, furnish information or produce a document when required to do so by such an officer.
 
  Clause 29 contains provisions dealing with offences committed by bodies corporate.
 
  Clause 30 contains ancillary provisions relating to offences.
 
  Clause 31 has the effect that where an agency worker is neither a worker as defined in the Bill nor in business on his own account, the Bill has effect as if he had a contract making him a worker with whoever is responsible for paying him.
 
  Clause 32 has the effect that the Bill extends to home workers even where they are assisted by others in doing the work supplied to them.
 
  Clause 33 ensures that the Bill applies to persons in Crown employment.
 
  Clause 34 applies the Bill to the armed forces while enabling Her Majesty, by Order in Council, to modify certain of its provisions for the purpose of their application to the armed forces.
 
  Clause 35 applies the Bill to House of Lords staff.
 
  Clause 36 applies the Bill to House of Commons staff.
 
  Clause 37 applies the Bill, with certain exceptions, to those employed to work on board a ship registered in the United Kingdom.
 
  Clause 38 empowers the Secretary of State to make regulations extending the Bill to apply to limited descriptions of individuals who are not workers as defined in the Bill.
 
  Clause 39 enables Her Majesty, by Order in Council, to extend the provisions of the Bill to offshore employment.
 
  Clause 40 excludes share fishermen from the application of the Bill.
 
  Clause 41 ensures that persons employed as voluntary workers by a charity or other voluntary organisation who work for no remuneration or only receive expenses are not entitled to the national minimum wage.
 
  Clause 42 provides that prisoners are not entitled to the national minimum wage in respect of employment while in custody.
 
  Clause 43 makes provision for circumstances where both the Bill and legislation relating to agricultural wages apply. It provides that a person prosecuted either for an offence under the Bill as it applies for the purposes of the Agricultural Wages Act 1948, the Agricultural Wages (Scotland) Act 1949 or the Agricultural Wages (Regulations) (Northern Ireland) Order 1977 ("the agricultural wages legislation") or for an offence under the Bill as it applies otherwise than for those purposes, may not be prosecuted for the other offence in respect of the same conduct; and that no amount shall be recoverable both under the Bill as it applies for the purposes of the agricultural wages legislation and as it applies otherwise than for those purposes in respect of the same work.
 
  Clause 44 introduces Schedule 2 which contains amendments to the agricultural wages legislation and also contains a regulation making power to make amendments to that legislation and certain other legislation relating to agricultural wages which are consequential on the Bill or regulations under clause 2.
 
  Clause 45 provides that where the employer of a worker is himself in the employment of another person and the worker is employed on the premises of that other, both the immediate employer and that other person are deemed to be joint employers of the worker.
 
  Clause 46 makes any agreement void to the extent that it seeks to exclude or limit the operation of the provisions of the Bill or to preclude a person from complaining to an industrial tribunal, except where a conciliation officer has taken action or a compromise agreement has been reached which satisfies the conditions set out in the clause.
 
  Clause 47 places a duty on the Secretary of State to arrange for information about the Bill and regulations made under it to be published so as to bring the information to the attention of those affected by them.
 
  Clause 48 contains powers ancillary to the regulation making powers in the Bill.
 
  Clause 49 provides for certain expenditure under or by virtue of the Bill to be paid out of money provided by Parliament.
 
  Clause 50 introduces the repeals contained in Schedule 3 to the Bill.
 
  Clause 51 contains definitions of "worker", "employee" and related terms. In particular, the term "worker" covers not only employees but also persons who contract to do or perform personally any work or services for another person except where the other person is a client or customer of a professional or business undertaking carried on by the first person.
 
  Clause 52 contains definitions of other terms used in the Bill.
 
  Clause 53 relates to the short title, commencement and territorial extent of the Bill. The Bill extends to Northern Ireland.
 
  Schedule 1 relates to the constitution and proceedings of the statutory Low Pay Commission.
 
  Schedule 2 contains amendments to the Agricultural Wages Act 1948, the Agricultural Wages (Scotland) Act 1949 and the Agricultural Wages (Regulation) (Northern Ireland) Order 1977 ensuring that no agricultural minimum rate of pay may be set at or fall below that of the national minimum wage and provides that the enforcement provisions in the Bill will be used for enforcing the minimum agricultural rates of pay.
 
  Schedule 3 contains repeals.
 
 Financial effects of the Bill
 
  - Effects resulting from the rate itself
 
 

It will not be possible to estimate the majority of the Bill's financial effects on the public sector with any accuracy until the level of the National Minimum Wage, and consequently the number of people who may be directly affected by it, are known. The National Minimum Wage's financial impact will also depend on how it is defined and calculated, and whether there are to be any exemptions, for example for those under 26. The Bill gives the Secretary of State the power to determine such matters, in the light of recommendations by the Low Pay Commission, through secondary legislation. Further details of the financial effects on the public sector will be addressed in the explanatory notes accompanying the relevant regulations.
 

  It is, however, possible to identify the areas where the National Minimum Wage is likely to have some direct effect. These include income tax and national insurance receipts; other tax receipts (e.g. corporation tax receipts); expenditure on in-work income related benefits; expenditure from the National Insurance Fund; expenditure on other welfare-related schemes; and public sector pay and procurement costs. Some of these effects will represent costs to the Exchequer, others will represent savings. It will not be possible to estimate with precision the net effect on the public sector borrowing requirement of these changes, even when the rate, definition and coverage of the minimum wage are known. However, assuming the National Minimum Wage is set at a sensible level, with employment and the productive potential of the economy unchanged, the net effect is likely to be relatively small.
 
 

- Expenditure resulting from the establishment of a Low Pay Commission
 

  If the Secretary of State exercises her power to appoint a statutory Low Pay Commission, the full year cost of running the body is estimated to be between £0.5m and £1m.
 
  The bill enables the existing, non-statutory LPC which was appointed on 28 June 1997 to be treated as the statutory LPC for the purposes of the first setting of the rate. The existing body was set up and is operating within the Department of Trade and Industry's present voted expenditure.
 
 

- Expenditure on publicity
 

  It is estimated that the Government may spend around £2m on publicising the National Minimum Wage, spanning the period just before and just after implementation of the National Minimum Wage.
 
 

- Expenditure on enforcement
 

  Operational details as to who enforces the National Minimum Wage have yet to be decided. The Government will seek the most cost-effective means of enforcement consistent with effective implementation of the policy. The Bill gives the Secretary of State the power to arrange for existing officers working for a Government Department or other Government body to carry out the enforcement of the National Minimum Wage, or to appoint new enforcement officers. The choice of enforcement route will depend to some extent on the rate at which the National Minimum Wage is set and on any exclusions, since this will determine the numbers affected by the legislation and consequently the likely caseload of any enforcement officers.
 
  The National Minimum Wage will also be enforceable through existing civil procedures for the recovery of underpayments through the Industrial Tribunals (with ACAS involvement) and by contract claims through the courts. Any increase in workload from the introduction of a National Minimum Wage will depend on which if any of the enforcement options is chosen and on the actual rate and coverage of the National Minimum Wage.
 
  In cases where the employer refuses or wilfully neglects to pay the minimum wage, enforcement officers will be able to pursue a criminal prosecution.
 
  As background, the cost per inspection for comparable enforcement bodies ranges from £50 per inspection to £380 per inspection. Costs per individual case for a full Tribunal hearing where the Chairman sits alone are currently estimated to be around £750. The cost for conciliation by ACAS is some £266 per cleared case. At present, around one third of cases require a full Tribunal hearing, with two thirds being settled by ACAS or withdrawn. The cost to the Court Service of handling liquidated money claims in the county court ranges from £24 in an unopposed claim to a minimum of £1100 per claim for more complex claims over £3000. The minimum cost of a defended claim under £3000 is estimated to be £150. The cost for a criminal case, including the cost of legal aid, is estimated to range from £200 to £3500, depending on its length and complexity. An appeal against such a case would cost around £385.
 
 Effects of the Bill on public service manpower
 
  The overall effect of the National Minimum Wage on public service manpower is expected to be small. There may be some increase in manpower resulting from the enforcement of the National Minimum Wage. This would depend on the enforcement option chosen by the Secretary of State and on the rate itself. The expected increase in the use of ACAS, and in Industrial Tribunal and court cases, may lead to a small increase in manpower in those areas.
 
 Business Compliance Cost Assessment
 
  The National Minimum Wage will clearly have both direct and indirect effects on business costs, but these are difficult to predict without knowing its rate, definition or coverage.
 
  The Bill provides the Secretary of State with the power to determine by secondary legislation what records should be kept by employers in relation to the minimum wage. There may be some cost to business in complying with these record-keeping duties, but they are not expected to be significant, either for recording pay or for recording hours worked.
 
  A Regulatory Appraisal containing a more detailed compliance cost assessment is available to the public from DTI, Bay 2.A.55, 1 Victoria Street, London, SW1H 0ET.
 
 
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© Parliamentary copyright 1997
Prepared 27 November 1997