Low Pay Commission report on non-compliance and enforcement of the National Minimum Wage
19 September 2017
The Low Pay Commission (LPC) has published a new report which considers the scale and nature of non-compliance with the National Minimum Wage (NMW) and National Living Wage (NLW).
Findings of the report include:
- Underpayment is highly seasonal throughout the year. It is highest immediately after an uprating of the minimum wage, when as many as one in five low paid workers (those paid at or below the NLW aged 25 and over may actually be paid less than they are entitled to. This may affect between 305,000 and 580,000 workers.
- In the three to six months that follow an uprating of the minimum wage, levels of underpayment fall significantly. The LPC estimate that underpayment fell to 13% of workers paid the NLW aged 25 and over six months after the NLW’s introduction. This is slightly lower than the 14% of workers underpaid six months after the uprating of the NMW to £6.50 in October 2014.
- Underpayment of the NLW and NMW is very difficult to measure. Statistics are difficult to interpret and the worst cases of exploitation of workers are almost certainly hidden.
- A large number of salaried workers (those who are paid monthly and don’t have a stated hourly rate) are paid less than the minimum wage. They make up 11% of people paid at the NLW but 44% of those paid below it.
- Recent developments in the Government’s enforcement of compliance, and communications regarding the N LW have led to real successes – record numbers of underpaid workers and arrears have been identified. Government enforcement investigations found arrears of £10.9 million for 98,000 workers in 2016/17 compared to £3.3 million for 26,300 workers in 2014/15.
This report has shown that underpayment, and therefore non-compliance, remains an issue that affects hundreds of thousands of people each year. However, while the numbers of people affected increased following the introduction of the NLW, this is largely due to the increases in coverage – the share of low paid workers who are underpaid has fallen very slightly according to our best estimates. Furthermore, there have been some real successes in enforcement of the NMW/NLW with the increased use of the tools available proving fruitful in terms of the number of underpaid workers and the level of arrears identified.
However the LPC has identified areas that could be improved and has asked for the following to be considered by BEIS and the director of Labour Market Enforcement when he sets out his strategy in Spring 2018:
Raising awareness and the number of complaints from workers
- BEIS should carry out a campaign aimed at raising awareness and the volume of complaints alongside the upratings each year
- Government should ensure that it is utilising all potential channels in raising awareness
- Government communication efforts should include better publicity around the third party complaints process, case studies and/or guidance based around successful complainants and publicising the improvements in the time taken to resolve a case
Raising awareness amongst employers
- Government should develops a similar approach to the Section 89 notices used by the Pensions Regulator for minimum wage compliance
Action to discourage employers
- Government should consider undertaking naming rounds on a consistent timed basis e.g. quarterly or six monthly
- Government should take further action to publicise the increase in enforcement activity as part its communications campaigns
- Adding a simple ‘tick box’ declaration to payroll software whereby the employer is asked to confirm that all of their staff are paid at the correct level could be a helpful ‘nudge’ to encourage compliance. The LPC recommend that Government investigates the potential of this change to payroll software
Recommendations for HMRC’s enforcement activity
- HMRC should establish information systems that allow Government to learn as much as possible about the nature and extent of non-compliance from the cases it investigates
- HMRC should expand and formalise its work across Government to both gather and share intelligence and take action on non-compliance where this is found to deliver results
- HMRC should maximise the intelligence gathered through the new apprenticeship funding system in England to reduce noncompliance amongst apprentices
Read the full report from the LPC: Non-compliance and enforcement of the National Minimum Wage: September 2017