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Comments from ACCA
April 2003

ACCA's comments on the specific issues discussed in the Department's paper are set out below.

a) Proposal to remove the 'four fifths' rule

In principle, we would say that, if many employers are not administering the 'four fifths' test correctly, and consequently are not paying the minimum wage, then this amounts to a widespread breach of employers' obligations under the NMW Regulations, which should be corrected by enforcement action. Where employees' legal rights are being denied them by their employers, the obvious response is to ensure more effective compliance action by the authorities.

In this particular case, however, we consider that the four fifths rule is unhelpful to employers and is also difficult to challenge or enforce on a fair and objective basis. We would not therefore contest its replacement.

b) Replacement of fair estimate agreements by fair piece rates

In principle, a piece rate basis for determining compliance with NMW would be fair since it would consistent with the way in which most of the affected workers are actually paid. But it is not straightforward to devise a piece-rate system which does not involve a cross-reference to the hours-based system in accordance with which the NMW is normally determined.

In the standard, hours-based rules there is no test of productivity applied - workers are paid a minimum rate of pay for each hour that they sign on for work, regardless of how busy they are or how productive they are during that time. In theory, we believe that it would be fair and reasonable for workers whose work is defined by reference to the items that they produce, rather than how many hours they are available to work, to be paid a minimum rate per item produced or per block of work completed. This would be a logical basis of setting pay levels, where it were feasible. It is, for example, logical to pay authors for a finished manuscript, book or article, regardless of how long they take to produce their work.

The difficulty, though, in this context is in determining piece rates which are directly comparable to hourly rates of the NMW. As we see it, this determination is always going to have to be made in accordance with an assessment of how productive the worker is expected to be over a period of time. The subjectivity involved in this assessment is unavoidable, although the employer should be required to make a fair and objective

assessment and be prepared to defend its fairness to enforcement authorities and employment tribunals. Employers should therefore have a degree of discretion in setting the piece rate although they should be expected to take into account industry benchmarks and any objective studies they have actually carried out.

We suggest that it would be feasible for an employer to, for example, decide that a home worker or output worker should be required

to produce a number of widgets each week, and that it takes 1 hour to produce each widget. The worker would then be paid the NMW for each widget produced.

We do not consider that it would be reasonable to insist that piece rates are deliberately set at a level designed to ensure that a certain proportion of workers earn at least the NMW, or to protect slower workers. If the essence of a worker's contract is actually to produce tangible outputs, then the end-product of the worker's activity should be the focus of attention in setting comparable levels of NMW. The allowance which is inherent in the four-fifths test for individual workers to be 'less productive' than the perceived norm is, we suggest, unnecessary.

(c) Replacing the need for agreement between employer and staff

As long as the proposed notice system did not conflict with any express or implied term of individual workers' contracts, we would not object to the introduction of a system of giving notice rather then entering into bilateral agreements.

We suggest, therefore, that there should be three elements in the cross-referencing of the pay of home workers and output workers to the NMW.

Firstly, the default situation, as now, should be that home workers and output workers should be paid for the hours that they claim to work.

Secondly, employers should be entitled to notify such workers, either in their contracts or as per section (c) of the consultation note, that they will be paid on a piece rate and that, for NMW purposes, an assumed level of productivity will be taken into account. Where the worker claimed to have worked 40 hours in a week, but, as per the example above, only produced 30 widgets, he or she would only be paid 30 X NMW.

Thirdly, there should be provision for employees to contest the assumed piece rate and recourse for employers in the event that employees give them false information as to their actual productivity.

As a general point, we consider that, whatever change is made to the current basis for paying the national minimum wage (NMW) to output and home-workers, any alternative approach must make it as straightforward as possible for employers to meet their obligations to pay the NMW.

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