Minimum Wage Enforcement

Introduction

A total of over £3 million was secured in wage arrears by the National Minimum Wage (NMW) enforcement officers in the year from April 2000 to 2002, according to the second Annual Report on the minimum wage from the DTI and Inland Revenue (1). This amount almost trebles the figure for the previous year. Successful cases included a group of Asian workers in London who won £100,000 in back pay, homeworkers on the south coast who won £140,000 and workers at a brewing company in the north west who received £80,000.

Since the introduction of the minimum wage, the NMW helpline, run by the Inland Revenue, has handled about 200,000 enquiries and over 6,500 complaints. The latest report revealed that:

• 7,000 investigations were undertaken by the 14 compliance teams located in towns and cities across the UK, an increase of more than a thousand on the previous year;
• one quarter of investigations were initiated by calls to the NMW helpline;
• the investigations resulted in 213 Enforcement notices and 60 Penalty notices were issued to employers, and 26 cases were head by Employment Tribunals, all of which secured successful outcomes for the worker(s) concerned.

The total number of complaints received was less than the previous year, indicating the way that the NMW has become an accepted feature of the labour market. However, the percentage of employers subject to a NMW enquiry who were found not to be paying the minimum wage rose to 30% in 2000/01, an increase of 10% on the previous year. This reflects the increased effectiveness of the IR: new provisions in the Employment Relations Act 1999 and the Finance Act 2000 have enabled the exchange of information between IR and NMW officers, and from 2000/01 the IR have also used Working Families Tax Credit (WFTC) data to help identify potential cases of non-compliance.

It also demonstrates the necessity of maintaining the visibility and momentum of the NMW's introductory campaign with successive increases in rates. A survey targeting deprived areas of Haringey and Islington in November 2000 found that 15% of respondents were earning less than £3.60, when the minimum wage was £3.70. (2) The West Midlands Low Pay Unit (WMLPU) calculated that between 17,000 and 20,000 people were missing out on the NMW in April 2000, over 1 in 10 of the estimated numbers who benefited from the NMW at the time of its introduction in April 1999. (3)

Non-compliance: regions and sectors

There are still no accurate measurement of the number of people who are not getting paid their NMW entitlement. Figures from the Office of National Statistics (ONS) showed that up to 300,000 individuals across the country were not getting paid the adult NMW rate in April 2000. The TUC has estimated that some 130,000 of these employees were not getting the adult rate legitimate reasons (for example, on accredited courses and thus the development rate), leaving 170,000 who should have been receiving the minimum wage but who were not.

Non-compliance is largely confined to particular, low-paying sectors, although there are incidences across all sectors. The Annual Report showed that service industries, with the exception of public services, have continued to attract the highest number of complaints along with the hospitality and retail trade sectors. The incidence of complaints per head of population remained the highest in the North East and Yorkshire and Humberside, whilst London and the South East again recorded the lowest incidence of complaints.

Independent research supports these statistics. A study by the West Midlands Low Pay Unit (WMLPU) found that non-payment most frequently affects those working in hairdressing and retail, in clothing manufacture, personal services, and in the black economy; homeworkers and pieceworkers. Eighty-six per cent of their NMW enquiries came from workers in the service sector. A study by the National Group on Homeworking uncovered cases of homeworkers still being paid as little as 10p an hour. (4)

Workers at risk of non-payment

Women, young people, and ethnic minority workers are most at risk of underpayment, because they are more likely to be in low-paid, insecure employment.

The majority of complaints to the Inland Revenue continued to be from adult workers between 22 and 60. The number of complaints from those aged 18 to 21 did increase significantly, possibly due to a targeted campaign for young workers in summer 2000. Yet the research conducted in Haringey and Islington in winter 2000 demonstrated that lower awareness is still associated with youth: as many as 54% of the unaware employees were under 25.

For the second year, the Inland Revenue received complaints in almost equal numbers from both male and female workers. Given that 70% of those who benefited from the NMW's introduction were women, this suggests that women and young workers, who are most at risk of low pay, are the least likely to assert their rights.

The Inland Revenue does not collect statistics on ethnicity of enquirer. Workers from ethnic minorities are particularly vulnerable to low pay and both to be less aware of and less likely to pursue a complaint. In the North London study, the proportion of below minimum earners among those who did not identify their ethnic group as "white British" rose to 20%. Lower awareness both of the NMW and its rate was strongly associated with ethnicity - while nearly 90% of the white British employees had heard of NMW, this was true of less than 50% of the Turkish and Kurdish employees questioned. Knowledge of procedures to make a complaint was virtually non-existent: respondents were unaware of which agency they needed to contact. Cross-tabulation of data on minimum-wage enquiries to NACAB showed that minority ethnic enquirers were less likely to take further action than those identified as 'white UK'.(5)

Vulnerability in accessing rights

Critical in an individual's decision not to complain is their sense of vulnerability and fear of victimisation if they do complain. Half of those workers not receiving the correct rate in the Low Pay Unit study (6) were reluctant to complain for fear of losing their jobs, despite the fact that the NMW Act protects workers from detriment.

Nearly 80% of respondents in the North London survey thought that fear of losing one's job, fear of being victimised, or difficulty in getting another job would influence people not to make a complaint.

There is a wealth of evidence to show that many workers feel unable to do anything about getting their employment rights, and the significance of this fact cannot be overstated. Low wages and low qualifications give workers a fragile position in the labour market, with the result that they are afraid to speak out. As an agency interviewed for the WMLPU study said, 'for low paid workers the risk of losing their job is more important that getting the NMW'.

No protection from detriment or dismissal

For those who do contact the NMW helpline, evidence shows that it provides a satisfactory service. The WMLPU study, for example, showed high levels of satisfaction with the service received amongst those who had contacted the NMW helpline.

Yet for workers who are unsuccessful in their claims, the consequences can be drastic. A third of those who contacted the WMLPU for NMW advice were unsuccessful in their claim, and then either left their jobs or were dismissed, and were unlikely to take their case further. In effect this gives a green light to employers to continue the practice of evading payments.

Although individuals' experience of the NMW helpline has generally been good, it offers no assistance for people suffering detriment - adverse changes to terms and conditions as a result of being entitled to NMW - or who lose their jobs after making a claim. This is outside the Inland Revenue's remit. Although the legislation gives workers protection from detriment or dismissal, the only way for workers to enforce their rights is to take their case to an employment tribunal. This can be a daunting prospect for low-paid and vulnerable workers, as the evidence from the WMLPU study shows.

Nearly half of all respondents in the LPU study had had some problem with accessing their full entitlement to the NMW or had suffered some sort of detriment as a result, usually reduction in hours or removal of paid breaks, which offset any increase in wages. A postal survey of low paid workers conducted by WMLPU suggested that about a quarter had suffered from adverse changes to their terms and conditions which they attributed to the NMW's introduction - yet only one case reached an employment tribunal. Given the fact that employers changed terms and conditions so that their overall wage bill did not increase, it is likely that a proportion of NMW workers will continue to suffer some type of detriment with each rate increase.

It is also likely that workers will continue to 'accept' such changes, as long as the Inland Revenue's remit precludes them from helping people who suffer detriment or unfair dismissal as a result of claiming the right to the NMW.

Need for enforcement agency to extend its remit

Levels of compliance with the NMW compare favourably with those for other legislation, thanks to publicity, high levels of awareness and the enforcement mechanism. Yet workers' confidence and ability to enforce their NMW rights is directly linked to their ability to enforce other employment rights. Evidence shows both that NMW enquiries are more likely to arise in workplaces where basic employment rights (such as the right to a payslip and written statement of terms and conditions); and that a satisfactory outcome in a NMW claim is more likely for people in workplaces which do adhere to these basic rights.(7)

The existing enforcement mechanisms of the NMW, which are working effectively, should be enhanced by extending the remit of the Inland Revenue to enforce basic employment rights, such as the right to payslip and a written contract.