Clause 8

Part of Employment Bill [Lords] – in a Public Bill Committee at 12:15 pm on 14 October 2008.

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee 12:15, 14 October 2008

I will leave that point.

In practice, the minimum wage has tended to be uprated year on year on the basis of recommendations from the independent Low Pay Commission. Currently, workers who find themselves being underpaid and therefore have minimum wage arrears discover that, when they report that and it is found that they have been underpaid and are entitled to arrears, they receive the minimum wage at the rate that was in operation at the time of the underpayment. In other words, they get their back pay, but lose out on the upratings that have taken place in the meantime. Such underpayments serve as inadvertent and unintentional loans from employees to employers. The clause will change that.

The Low Pay Commission has expressed concerns on this matter over the years. It expressed particular concerns in its 2007 report. We consulted on whether arrears could be calculated in a fair way, to take account of the depreciation in value of those arrears as a result of the uprating of the national minimum wage. The overwhelming majority of respondents agreed with the aim of making  arrears fairer for workers in that way. The majority of those who expressed an opinion were in favour of calculating arrears by reference to the current rate of the minimum wage.

At this point I tread carefully, Mr. Bercow. I will attempt to take the Committee through the equation on page 6 of the Bill under clause 8. As hon. Members will see, the equation is A over R1, multiplied by R2. A is the amount of money calculated to have been underpaid to the worker, and R1 is the rate of the minimum wage at the time of the underpayment. For example, if the underpayment happened last year and the worker was underpaid for one hour, the £5.52 that was earned would be divided by the rate at which the minimum wage was paid, which was £5.52 per hour. That calculation reaches a time of precisely one hour. R2 is the current rate of the minimum wage. The formula takes an amount that somebody has been paid at the minimum wage and turns it into an amount of time in hours, based on the rate of the minimum wage at that time. In order to ensure that the fair arrears apply, that time is multiplied by the rate of the minimum wage at the time the incident is reported or found out. In the case of our mythical worker who was underpaid by £5.52 last year, they would then receive £5.73 as the fair arrears. That is the rate of the minimum wage since it was uprated.

The new method of calculating arrears is much fairer. Despite my poor teaching skills it is relatively simple, in that the concept changes an amount of money into an amount of time and multiplies that by the current rate of the minimum wage. It secures a measure of justice for workers who, as we agreed in discussion of clause 7, are often living at the margin and certainly cannot afford to lose out by giving what are, in effect, interest-free loans to their employers.