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Judicial review of proposed NMW changes

Judicial review of proposed NMW changes

Adrian Marlowe

Adrian Marlowe

With many lower paying agencies and umbrellas worried about expenses and the National Minimum Wage (NMW), the Cordant Group PLC has lodged a judicial review.

The application challenges the proposed amendments to NMW legislation due to come into effect on 1st January 2011. The amendments will prevent travel expenses from counting as income for the purposes of calculating whether a worker has received the National Minimum Wage or not. These changes will have a significant impact on some low paid agency workers, particularly those operating via umbrella companies.

In terms of net pay, someone on £6.00 per hour based on an average 35 hour week with £50 worth of expenses would currently take home £199.50. If the proposed changes take place, the same worker would see their take home pay reduced to £183.65, to maintain the same level of take home pay, the worker’s rate would need to increase to £7.36 per hour. If the worker had a higher level of expenses then the increase in rate would be much greater.

The main grounds for the judicial review are that the government’s explanations and reasoning for the changes are flawed and the legislation does not meet its intended objectives, that the legislation was necessary in order to protect low paid workers from exploitation and prevent them from being denied access to contributions based social security benefits and to prevent those who cannot utilise such a scheme from having a competitive disadvantage.

The challenge raises some technical points regarding procedural matters. However it also argues that in reality the new legislation will leave low paid workers worse off as they will have lower take home pay and reduced access to means tested benefits such as tax credits and housing benefit as the salary element of their pay (excluding expenses) will increase. It has also been argued that the government has failed to take into account the fact that workers under these schemes are employed and therefore have employment rights which many other agency workers do not.

The challenge seeks to counter the HMRC view that workers operating under expenses schemes have reduced access to contributions based benefits, arguing that the level of minimum earnings for contributions based benefits is actually lower than most people’s tax free allowance. On this basis, the argument goes, expenses schemes would not usually take a person’s salary below their tax free allowance, as there would be no point in doing so.

The arguments also relate to competitive disadvantage, which various organisations provided representations on in response to the recently closed consultation preceding the amended laws. Cordant argues that the real problem is the inconsistent application of legislation and granting of dispensation by HMRC and not the legislation itself. The judicial review is therefore asserting that this problem can be remedied by clarity and consistency on the part of HMRC rather than a need for amended legislation. 

The amended regulations are due to come into effect on 1st January 2011. The judicial review is listed for hearing on 20th & 21st December 2010.

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