Low Pay Commission consultation 2024

Our response explains two significant issues affecting low-paid workers, which have been exacerbated by HMRC's tax actions and should be addressed by HMRC's NMW unit.

Workers misclassified as self-employed: Many temporary workers are misclassified as self-employed but should have worker status, potentially leading to NMW breaches, especially when the elective deduction model (EDM) is used.

Salary Advance Schemes: These schemes, which we think will increase now that HMRC have changed reporting rules to accommodate them, charge fees to workers to access their wages early, which can potentially reduce their pay below the NMW.

Our recommendations are:

• To urgently undertake new research to look for any negative impacts on workers of the recent increases, particularly for vulnerable subgroups. This should include looking whether there has been a shift to alternative work arrangements (such as ‘self-employment’), as well as changes within the employment setting for example, redundancies/reduced hours/other trade-offs.
• Issues like EDM damage workers and the reputation of our labour market and enforcement regime. The LPC should try and ensure, as far as possible, that HMRC officers understand EDM and are not strict or sparing in their approach to it. Instead, they should be helpful, holistic and see the potential role that they could play in making engagement models such as EDM ineffective.
• More generally, HMRC should do more to tackle the potentially serious breaches of minimum wage rules that can go hand-in-hand with worker status errors and in particular, false self-employment.
• If one of the aims of HMRC NMW unit is to help employers be compliant, the current guidance on salary advance schemes is not adequate. HMRC should produce more comprehensive guidance on salary advance schemes, including on the status of the third party fees, as a matter of urgency. This should then be promoted to employers so that they understand their obligations and can make an informed decision as to any risk and therefore whether to go ahead with implementing such a scheme (or whether, for example, to switch to weekly pay periods or whether to offer advances to employees directly, without needing to use fee-charging schemes).
• We urge the commissioners to undertake a review of the salary advance market so as to better understand the nature and scale of scheme use, and to recommend a tweak to the law around ‘use and benefit of the employer’ if deemed necessary to protect low paid employees.