Many of those firms using the services of a business consultancy in London will have taken note of the recent national minimum wage (NMW) crackdown that has seen a quadrupling in non-compliance fines. This also raises the question of the potential effect on unpaid directors or those taking a low salary.
Recent reports have signalled the government’s intention to take a harder line with companies failing to pay young workers the NMW. Vince Cable has indicated that a general NMW crackdown is imminent. Legislation has already been pushed through parliament, which means that from 1 February 2015, the maximum penalty for failing to pay the NMW will be £20,000, compared to the current £5,000.
The news has already prompted many companies to check that their dealings with employees are in compliance with the NMW legislation – but the position of directors also needs to be considered. The NMW regime may apply to a director, depending on the nature of their contract with their company. Problems can arise where directors take a modest salary, for example, with dividends making up the rest of their income.
A business consultancy in London will generally advise that directors aren’t affected by the NMW rules when there is no contract between them and their company. While this is the case if a contract relates solely to the person’s role as a director, a contract requiring that person to do a job can involve NMW problems.
A building firm, for instance, may have four directors who are each required the others to work on site, thus constituting an employment contract even if it isn’t in writing. This would mean that the NMW rules would apply.
The government has not suggested that its NMW crackdown will specifically cover directors’ contracts. Nonetheless, it makes sense for potentially affected companies to minimise the risk of challenge. Where directors might be impacted by NMW legislation, they are advised to drop any contracts or arrangements requiring them to work in the company’s business.
The bottom line is that if a person’s contract only covers work as a director, they won’t be hit by any NMW crackdown. If they do have an oral or written contract of employment, however, and are not paid the NMW, fines may apply.