The provision of internships has been integral to the Fashion Industry, often providing the perfect platform for budding designers to cultivate their talent under the branch of an experienced label.
However these arrangements have recently been brought under the spot light by HM Revenue & Customs (HMRC) in assessing their applicability to the National Minimum Wage (NMW) Act 1998. HMRC is responsible for enforcing the NMW.
HMRC has revealed that its strategy is to target specific industries and a sample of companies within them to check for compliance with the NMW regulations and to enforce compliance where necessary. The chosen sectors will be used to send a message to the wider community. The fashion sector appears to be one of their first targets.
The NMW Act requires that anyone who is classified as a “worker” is entitled to be paid at least the NMW.
Under the Act, a worker is someone who has a contract of employment, written or oral, express or implied, or any other contract that requires that they personally carry out work or services for another party, assuming that they are not self-employed, or that they are employed by someone else.
Specific exemptions include:
- people doing Government-accredited apprenticeships and some work-based training schemes
- students undertaking their first degree course or teacher training course who are working for no more than 12 months as part of their degree
- voluntary workers employed by a charity, voluntary organisation or statutory body
- a few other minor groups, eg homeless people working in return for shelter.
Another exception are individuals who are work shadowing; which means trailing someone else who is working, but not actually working themselves.
Where the employer is a business the exemption for voluntary workers will not apply. If the other exemptions listed above are not relevant, then thought must be given as to whether or not the ‘intern’ is a worker; if the definition of a worker is met then businesses must ensure that at least the NMW is paid to them.
HMRC compliance officers may carry out inspections at any time and there is no requirement to provide reasons for an inspection. Many such assessments are triggered by complaints from workers.
In January 2010 HMRC launched a team with the rather racy title of “Dynamic Response Team” to work on the most high-profile cases and to provide a rapid response to cases across the UK.
HMRC has the power to search back through 6 years of records. If a compliance officer determines that a business has failed to pay the NMW, it may be served with a notice of underpayment, which requires arrears to be paid to the worker and a penalty to be paid to the Secretary of State.
The penalty is half the total underpayment, with a minimum penalty of £100 and a maximum of £5,000. If a business fully complies with the terms of the notice the penalty may be reduced by 50 per cent. Failure to comply can result in a criminal prosecution.
We have been advising our clients to review the policy that governs their internships and consider how they could be affected by HMRC’s actions. It is worth discussing any concerns with an employment lawyer and speaking with their accountant to determine any financial implications for the business.
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