Section 1
Executive Summary
Summary of Regulatory Impact Assessment (RIA)
Department:
Enterprise, Jobs and Innovation
Title of Legislation:
National Minimum Wage (Low Pay
Commission) Bill 2015
Stage:
Drafting
Date:
January 2015
Contact for enquiries:
Liam Kelly/Michael Greene
Telephone:
01 6312610/6313289
Policy options considered
1. Do nothing
2. Legislate for a revised framework.
Preferred option:
Option 2 is the preferred option.
Options
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Costs
Benefits
Impacts
Direct resource costs of
€500,000 per annum
associated with the
operation of the Low Pay
Commission.
New framework will
provide for a balanced
statutory minimum pay
rate that is fair, with one
that is sustainable and
which allows employers
to continue to create
quality jobs.
The proposals are
expected to result in
beneficial impacts on
low-paid and
vulnerable groups with
minimum adverse
impact on employment
and competitiveness.
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National Minimum Wage (Low Pay Commission) Bill 2015
Regulatory Impact Analysis
Section 2 – Description of policy context and objectives
2.1 Policy Context
Statement of Government Priorities and Government Decision
The Statement of Government Priorities 2014–2016 includes a commitment “(to)
establish a Low Pay Commission on a statutory basis as an independent body to make
annual recommendations to the Government about the appropriate level of the
minimum wage and related matters”.
On 13 January, 2015, the Government approved1 the establishment of the Low Pay
Commission and the drafting of the National Minimum Wage (Low Pay Commission)
Bill 2015 along the lines of the General Scheme, subject to such amendment and
provision that might be required having regard to the further advices of the Attorney
General .
Current Minimum Wage Setting Structure
The National Minimum Wage was introduced in Ireland in April 2000. The current
rate of €8.65 per hour was first set in 2007. It was reduced to €7.65 per hour for a five
month period but was restored to the 2007 level on 1 July, 2011 by way of an
amendment to section 11 of the 2000 Act (via the Social Welfare and Pensions Act
2011), which stipulated that “The Minister shall, by order, declare a national
minimum hourly rate of pay for the purposes of this Act of €8.65.”
Under the provisions of the national Minimum Wage Act 2000, as amended, the
national minimum wage can be adjusted by Ministerial Order:
following a recommendation in a national agreement (Section 12);

in the absence of such a recommendation, following an examination
and recommendation by the Labour Court on foot of a request by a
1
Government Decision S180/20/10/1942
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substantially representative organisation of employees or employers
(Section 13), or

unilaterally by the Minister (Section 11), whether or not a
recommendation under section 12 or 13 has been made.
In making such an Order a number of criteria specified in the legislation must be
taken into account:
(a) changes in earnings during the period since the most recent making of an
order under this section;
(b) changes in currency exchange rates during that period;
(c) whether during that period—
(i) unemployment has been increasing or decreasing, and
(ii) employment has been increasing or decreasing;
(d) the likely effect that the proposed order will have on—
(i) levels of employment and unemployment,
(ii) the cost of living, and
(iii) national competitiveness.
The Economic and Social Research Institute (ESRI), in its 2006 analysis of the last
Labour Court recommendation proposing an increase to the NMW2, concluded that
adjusting the minimum wage by a substantial amount on an irregular basis, with
lengthy gaps between increases, is more likely to have a detrimental impact on
employment and to contribute to uncertainty for employers and (actual and potential)
employees than regular, smaller and fairly predictable up-ratings.
In the opinion of the ESRI, the approach adopted in the UK, where the national
minimum wage has been increased from 1 October each year by much smaller
amounts seems far preferable, even if the overall increase implemented over a period
of say 5 years were to be similar. It would avoid the need to consider increases in the
minimum wage on the scale previously recommended by the Labour Court, with
2
"Evaluating the Introduction of a National Minimum Wage: Evidence from a New Survey of Firms in
Ireland" - Labour, Vol. 20 No 1, March 2006
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smaller and more regular increases being easier to absorb and also easier to align with
changes in underlying conditions.
2.2 General objective
The principal function of the Low Pay Commission will be, on an annual basis, to
examine and make recommendations to the Minister on the national minimum wage,
with a view to securing that the national minimum wage, where adjusted, is adjusted
incrementally having had regard to changes in earnings, productivity, overall
competitiveness and the likely impact any adjustment will have on employment and
unemployment levels. The approach proposed draws on that adopted in the UK
where, since 1997, the recommendations of the UK Low Pay Commission have
brought about a progressive increase of the minimum wage that has little detrimental
effect on the functioning of the economy or labour market.
The Commission will be a nine member body comprising an independent chairman,
three members who will have a deep understanding of the interests of low-paid
workers, three members who will have a deep understanding of the interests of
employers, particularly small to medium-sized employers and those operating in
traditionally low-pay sectors, and two members who will have relevant knowledge or
expertise in relation to some or all of the following; economics, labour market
economics, statistics, and employment law.
The Minister will have power to accept, reject or vary the recommendations of the
Commission, for stated reasons. Changes to the minimum wage will be made by
statutory order. The Minister will make a statement in the Oireachtas setting out the
basis for any rejection or variation of a recommendation by the LPC. In the unlikely
event of the Commission failing to make any recommendation within the statutory
timeframe, the Minister retains the power to make an Order, subject to the defined
criteria, setting a minimum wage.
Alongside examining the National Minimum Wage, the Low Pay Commission will
also be tasked with examining matters related generally to the functions of the
Commission under the Act. This work programme will be agreed by Government and
presented to the Commission in February of each year
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In addition, in the discharging of its function, the Commission will be required to
make recommendations that are evidence-based using a suite of agreed data sets or,
where required, based on bespoke research undertaken at the behest of the
Commission.
2.3 Immediate Objectives
In line with Government decision S180/20/10/1942, the legislation will amend the
National Minimum Wage Act 2000 to put in place a legislative framework providing
for the statutory establishment of a Low Pay Commission in Ireland.
Section 3 – Identification and description of policy options
3.1
Option 1. Do Nothing
The “do nothing” option would fail to address the commitment in the Statement of
Government Priorities 2014–2016 to establish a Low pay Commission, nor would it
address the structural issues identified by the ESRI.
3.2
Option 2. Amend the National Minimum Wage Act 2000
To implement the Government decision and to achieve the policy objectives set out
earlier, the appropriate amendments to the National Minimum Wage Act 2000 are
required to establish the Low Pay Commission on a statutory basis.
3.3
Conclusion
For the reasons set out above, Option 2 – amending the National Minimum Wage Act
2000 is the appropriate course to take.
Section 4 –Analysis of costs and benefits
4.1
Benefits
From an employer and worker perspective, a significant benefit of the LPC concept is
the National Minimum Wage rates will be assessed annually and, therefore, any
adjustments into the future will be incremental and less disruptive for business rather
than the step changes witnessed in the past (e.g. +13% in 2007).
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4.2
Costs
There are anticipated direct resource costs of €500,000 per annum associated with the
operation of the Low Pay Commission.
The implementation of recommendations with regard to what the Commission sees as
the appropriate level of revisions to the national minimum wage, if any, will impact
on employer costs. However, this situation prevails in any adjustment, such as
occurred in 2011. If anything, the annual recommendations of the Commission will,
most likely, witness steady smaller incremental adjustments (if such are
recommended) that will impact to a much lesser degree on employer cash flow and on
employment than larger scale adjustments that happen across a number of years. The
UK LPC model is seen as having been particularly effective in this regard.
5.
Impacts
5.1 National Competitiveness
The establishment of a Low Pay Commission will put in place an independent body
that, taking specified economic and social matters into account, will advise the
government on the National Minimum Wage and related matters. The particular role
of the Commission is to ensure that any advice or recommendations it makes to
Government is evidence-based; utilising agreed data, carrying out research and
consultations with employers, workers and their representatives and taking written
and oral evidence from a wide range of organisations. This is to ensure that any
suggested changes to the National Minimum Wage have minimum adverse impact on
employment and competitiveness.
5.2 Socially excluded or vulnerable groups
As one of the objectives of the proposed legislative framework is to ensure a balanced
statutory minimum pay rate that is fair and will assist low-paid and vulnerable
workers, in particular migrant workers, it is expected that the proposal, will have clear
benefits for this category of worker.
5.3 Gender Equality
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The national minimum wage continues to play an important role in addressing the
gender pay gap in Ireland. Given that a higher proportion of women tend to be
employed in minimum wage sectors, particularly in part-time employment, any future
order in relation to the NMW will benefit women to a greater extent than men.
4.6 Economic Markets/Consumers and Competition
The proposed legislation does not involve a policy change in the economic market.
Rather, it provides for a revised framework to establish a Low Pay Commission that
will make annual recommendations on the appropriate level of the national minimum
wage and related matters on an annual and evidenced-centred basis.
4.7 Other impacts
There are no impacts are anticipated the Rights of Citizens, Environment or North
South and East West relations.
5.
Consultation
The Low Pay Commission will be required to ensure that any advice or
recommendations it makes to Government is evidence-based; utilising agreed data,
carrying out research and consultations with employers, workers and their
representatives and taking written and oral evidence from a wide range of
organisations.
6. Enforcement and Compliance
The National Minimum Wage Act 2000 already makes provision for enforcement and
compliance requirements.
Separately, the Minister is undertaking a major reform programme of all of the
workplace relations bodies and it is expected that these reforms will deliver a "fit for
purpose" workplace relations system that will be supported by proportionate, effective
and efficient compliance and enforcement measures in relation to employment rights,
including the National Minimum Wage.
The Minister made provision in the Workplace Relations Bill 2014 for a range of
enhanced compliance measures, including the use of Compliance Notices, Fixed
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Charge Notices and a new mechanism for enforcing awards of the WRC Adjudicators
and Labour Court Determinations.
The Workplace Relations Bill also provides for sanctions to be imposed personally on
directors, officers or managers for certain offences under employment law committed
by a company if it is proven in the course of the prosecution that any such offences
were committed with the consent or connivance etc. of any director, manager
secretary or other officer of the company. Such offences will include, for example,
failure to comply with an enforcement order of the District Court in respect of a
determination of the Labour Court or a decision of an adjudication officer. The
Minister is confident that the introduction of these measures will provide for more
appropriate, efficient and effective enforcement of employment law.
7. Review
The Low Pay Commission will be required every three years to report generally on
the operation of this Act, including in particular on the impact of orders made under
this Act on low pay, income distribution and employment costs.
8. Publication
This RIA is being published on the website of the Department of Jobs, Enterprise and
Innovation.
Department of Jobs, Enterprise and Innovation,
January, 2015
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