Underpayment of workers on the minimum wage has increased since the introduction of the UK’s National Living Wage in 2016, according to the independent Low Pay Commission, which is calling on the government to resume the practice of regularly naming employers who fail to comply.
Up to 439,000 people were paid less than their legal entitlement in April 2018, equivalent to 23 per cent of all minimum wage workers and including 22 per cent of those on the main adult rate, the LPC said in a report published on Friday.
The independent advisory body underlined that this estimate would not reflect the true level of underpayment, due to the limitations of the underlying survey data. However, it said there was a clear pattern of underpayment increasing since 2016, when the government set a target of raising the wage floor to 60 per cent of median earnings by 2020.
“It is essential that people receive what they are entitled to. It is also vital for businesses to be able to operate on a level playing field and not be illegally undercut,” said Bryan Sanderson, the LPC’s chair. He added that the government had made “real progress” on enforcement but needed to do more in assessing the scale of non-compliance, encouraging workers to report problems and targeting the most serious cases.
The LPC’s estimates do not necessarily mean that employers are intentionally flouting the rules. They include large numbers of workers paid close to the legal minimum and a disproportionate number of salaried employees, suggesting some employers found it difficult to calculate the correct hourly rate.
“But negligent — rather than intentional — underpayment is still underpayment and denies workers their rightful income,” the LPC said.
Moreover, it found that some 135,000 people were still paid less than £7.20 an hour, the level at which the NLW had initially been set in 2016, despite the two increases by the time the survey was conducted. It also said the data were unlikely to capture the most serious cases, since they did not cover the informal economy.
There were signs of more serious problems in sectors suffering more acute financial strains — with both the highest proportion of underpaid workers, and the biggest year-on-year rise, in childcare. Underpayment was also more prevalent among women, with the youngest and oldest workers, and in very small companies, the LPC said.
The rise in underpayment has taken place despite a government drive to ensure compliance, with a doubling in the funding allocated to HM Revenue & Customs for enforcement.
The LPC said HMRC appeared to have focused its resources on larger, more complex companies where a large number of workers were being underpaid small amounts. However, the vast majority of cases still concerned 10 or fewer workers, with these people owed much bigger back payments.
The LPC said that although employers and unions had expressed concerns about a scheme to name employers failing to comply, these “naming rounds” had proved an effective deterrent; and the delay since the last round was a “missed opportunity” to keep the issue in the public eye.
