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The National Minimum Wage

8th July, 2013

HMRC investigations lead to 9 businesses having to pay compensation to interns

As a result of investigations carried out by Her Majesty’s Revenue and Customs (“HMRC”) 9 companies, including Arcadia Group Ltd, have been ordered to pay out almost £200,000 to unpaid interns for breaches of national minimum wage legislation. The investigations have come after the Department for Business, Innovation and Skills is said to have referred 100 firms to HMRC for potentially breaching the law.
There has been a significant increase in the number of unpaid roles in the UK over recent years to the extent that the Olympics alone took on 70,000 volunteers in 2012. While internships can be highly advantageous for all parties; providing the company with a way to access talent and providing interns with meaningful work experience to enhance their employability and skills, there has been much controversy as to whether the interns are in fact being exploited.

Minimum wage applies to most workers, but read below to see who is not covered

The National Minimum Wage Act 1998 applies to most workers who are over compulsory school age and who are working, or ordinarily working, in the United Kingdom. A worker is defined in section 54 as an individual who works under:

• A contract of employment.
• A contract (express, implied, oral or written) to personally do or perform work or services for another, provided that the other is not a customer or client of a profession or business undertaking which is carried on by the individual.

It is still possible for a company to take on an unpaid intern, provided they are not construed to have created a legally binding contract. The legal status of such working relationship can be difficult to distinguish with a key focus on how integrated the intern is within the company. The intern could be construed as integrated, and therefore entitled to national minimum wage in situations where they replace another employee, they have their own workload and complete work beyond mere experience (i.e. for longer periods).

How to protect your company from unintentionally creating a legally binding contract

If your organisation currently has interns, some tips to avoid being construed as creating a legally binding contract include:
• Clearly identify payments to cover expenses and reimburse them again receipts.
• Remove or minimise perks that could be seen as consideration.
• Give the volunteer the ability to refuse, and choose when to work.
In addition, it may be helpful, though not compulsory, to have a specific volunteer handbook to confirm the organisations intentions. The handbook may include the volunteer’s role, supervision, support and flexibility and the volunteer’s relationship with the organisation.

Current national minimum wage rates (including October 2013 increases)

As of 1 October 2012, the national minimum wage hourly rates are as follows:
• The standard adult rate (workers aged 21 and over) is £6.19. This will increase to £6.31 from 1 October 2013.
• The development rate (workers aged between 18 and 20) is £4.98. This will increase to £5.03 from 1 October 2013.
• The young workers rate (workers aged under 18 but above the compulsory school age who are not apprentices) is £3.68. This will increase to £3.72 from 1 October 2013.
• The rate for apprentices is £2.65. This will increase to £2.68 from 1 October 2013.
• The accommodation offset is £4.82 each day. This will increase to £4.91 from 1 October 2013.

HMRC are protecting interns who complain about pay conditions and “cracking down” on the issue

In light of the investigations, HMRC have said that cases involving interns complaining about pay conditions will be prioritised and the individual will remain anonymous. HMRC’s assistant director of the national wage team, Michelle Wyer, commented, “unpaid internships can provide valuable opportunities. However, we are clear that employing unpaid interns instead of workers to avoid the minimum wage is wrong. This is why we are cracking down on it”.

If you use interns and are unsure of your legal position, contact our expert Employment law team to find out where you stand.

For further advice or information in relation to your obligations under the national minimum wage legislation, please contact Claire Brook on 01244 405575 or send an email to [email protected].


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