Compliance and Enforcement

Introduction

4.1 Compliance is essential to the success of the minimum wage. When non-compliance arises it is in the best interests of employers and workers alike that enforcement action is swift and effective. We have paid close attention to the work of the Government as it has developed and enhanced its enforcement role, and have made recommendations in the areas where evidence suggested it was less effective. We continue to monitor closely how well the minimum wage is being enforced.

Awareness

4.2 For the minimum wage to be effectively self-enforced, it is essential that awareness is high, both for workers and employers. We have made a number of recommendations on raising awareness since the minimum wage was introduced and we are pleased that these have been acted upon by the Government. The evidence we have received over the last few years indicates that good progress has been made in raising awareness of the existence of the minimum wage, although less so on awareness of the detail, such as of the minimum wage rates and the exemptions that can apply. Some groups of workers remain particularly difficult to reach.

4.3 We received evidence on the effectiveness of the Government’s awareness campaigns. A Citizens Advice Bureau we visited in Dagenham advised us that the national advertising campaigns on the minimum wage rates had worked well and business people in Lincolnshire told us that all of their employees were well aware of the timing and scale of minimum wage upratings. However, some organisations continued to raise concern about low levels of awareness. We were told by a group of young people in Scotland that there was little awareness among young people. It was suggested that schools should play a bigger role in informing young people of their employment rights by providing them with appropriate information while they are still within the school system.

4.4 A number of organisations told us that awareness of the minimum wage among migrant workers was low, particularly workers from central and eastern Europe (the A8)1. The Government explained to us how it had re-evaluated its minimum wage publicity to enable it to reach this group of workers. We received some evidence, albeit anecdotal, that A8 workers’ awareness of the minimum wage and of other employment rights was increasing, although there was concern that many were still hesitant to enforce these rights. We look at the specific enforcement issues affecting migrant workers later in this chapter.

4.5 In our 2007 Report, we expressed some concern that the minimum wage publicity budget had been substantially reduced in 2006/07. The Department of Trade and Industry (now the Department for Business, Enterprise and Regulatory Reform (BERR)) told us that this did not signify a lowering of the priority being given to raising awareness, but reflected the more strategic approach being taken. BERR’s publicity campaign for 2006/07 was based around the uprating of the minimum wage on 1 October 2007. Its main features were an online campaign targeting young workers; the distribution of short guides for workers, young people and employers, available in a number of languages; publicity tailored for the childcare sector – the sector chosen for targeted enforcement during 2006/07; and various media coverage projects, including the use of regional and ethnic minority press. In addition, BERR ran a campaign specifically targeted at migrant workers from Poland, Lithuania and Slovakia, whom statistics from the Worker Registration Scheme showed as making up 90 per cent of migrant workers from the A8 countries. The campaign consisted of advertising in UK-based foreign language titles, on relevant websites and through outreach work, including the distribution of a poster for display in a network of shops.

4.6 In our 2007 Report, while we recognised that an effective publicity programme was not necessarily dependent on the amount of money spent, we registered our concern that the cut in publicity funding could be detrimental to the effectiveness of enforcement. We see awareness as crucial to ensuring that the minimum wage benefits the most vulnerable workers. We were therefore very pleased when the Chancellor of the Exchequer announced a 50 per cent increase in the funding for monitoring and enforcement of the minimum wage in his pre-Budget speech in December 2006 (HM Treasury, 2006). BERR has since allocated a substantial increase to the funding for publicity in 2007/08, and has committed to maintaining this at an appropriate level going forward. We fully support this commitment to raising awareness of the minimum wage. We consider how the remaining additional funding is to be utilised later in this chapter.

4.7 BERR advised in its evidence that its current approach on publicity is to target key groups of workers, with the aim of raising awareness of the rate itself. Its 2007/08 publicity campaign seeks to maintain the momentum throughout the year, as opposed to being focused solely at the time of the minimum wage upratings. It will target publicity at worker audiences in particularly hard-to-reach groups, who would be unlikely to consume mainstream media, or to seek Government information from established channels. In its evidence, the Government advised that research it has commissioned to evaluate its latest targeted enforcement campaign will also evaluate the success of the 2007/08 National Minimum Wage publicity campaign. This qualitative research will look at how workers and employers received the 2007/08 campaign and how improvements could be made to the way messages are delivered in the future. We welcome this new approach and look forward to seeing the evaluation of its impact.

4.8 We noted in our 2007 Report that a number of organisations were working to raise awareness of the minimum wage and other employment rights among migrant workers, in some cases with Government support, but that there was little co-ordination between these groups, often leading to a duplication of effort. We recommended that the Government work more collaboratively in its efforts to raise awareness. It accepted this recommendation and in its evidence advised how it was being taken forward.

4.9 BERR told us that it has sought ways to work collaboratively with stakeholders in taking forward its 2007/08 campaign, engaging with other Government departments, as well as employer and employee stakeholders, in developing publicity material for the 2007/08 targeted enforcement in the hotel sector. It also worked with stakeholders, including the TUC and sector unions, the National Union of Students, Citizens Advice, London Citizens, and migrant community organisations and churches, in distributing minimum wage leaflets. In addition, a leaflet about employment rights, including the minimum wage, is now included in a pack sent by the Home Office to every new worker from the A8 countries and Romania and Bulgaria (A2 countries) who registers with the Worker Registration Scheme.

4.10 Other actions the Government is taking to address this recommendation include the work of the Vulnerable Workers Pilots which are operated on a partnership basis, bringing together unions, Acas, community groups, business organisations and enforcement agencies. BERR’s Vulnerable Worker Enforcement Forum, chaired by the Employment Relations Minister, is also considering our recommendation as part of its programme of work. We are pleased to note the work under way and will continue to monitor progress with interest.

Non-compliance

4.11 It is generally accepted that the vast majority of employers comply with the National Minimum Wage. However, the extent of minimum wage non-compliance is an issue that we have grappled with for several years. The Office for National Statistics (ONS) estimates that 292,000 jobs paid below the minimum wage in April 2007. This amounts to around 1.2 per cent of all jobs. However, this figure should not be used as a measure of non-compliance as there are a number of legitimate reasons for paying below the minimum wage. For example: apprentices covered by the minimum wage exemptions, workers legitimately subject to the accommodation offset deductor and those on piece rates may all be legally paid below the adult rate of the minimum wage. Together with ONS, we have recently undertaken some analysis in order to understand better the characteristics of those workers ONS estimate as paid below the minimum wage and to determine the extent to which the recorded underpayment is legitimate. This work (details of which can be found in Appendix 2) has confirmed three things: it is not possible to arrive at definitive answers from the available data; some, maybe as many as half, of those shown as being underpaid may be accounted for by legitimate reasons such as exemptions and measurement errors; for the rest, other types of reporting errors might provide one explanation, but non-compliance cannot be ruled out.

4.12 There will also be workers who are not receiving the minimum wage and who do not show up in the official statistics, such as those working in the informal economy. It is likely to be the workers who do not show up on the official radar who are most vulnerable to underpayment and exploitation. We have no way to identify the extent of such non-compliance, and therefore, as in previous years, we have drawn on other information sources in our assessment, such as the work of Her Majesty’s Revenue and Customs’ (HMRC) minimum wage enforcement team and evidence from our consultation and research.

4.13 The statistics produced by HMRC on its enforcement activities (Table 4.1) show that over 51,000 enquiries were received by the HMRC Helpline during 2006/07, a fall of 16 per cent over 2005/06 and 11 per cent when compared to the number of calls received in 2004/05. However, there were 2,210 complaints about non-payment of the minimum wage in 2006/07, an increase of 3 per cent over 2005/06 and 14 per cent over 2004/05. HMRC completed 1,523 investigations into minimum wage underpayment in 2006/07. This was fewer than in the previous two years, but the drop may be explained by the increase in the complexity and technical nature of many of the investigations now arising.

Table 4.1

National Minimum Wage: Enquiries and Complaints to HMRC and Enforcement Action Taken, 2004–2007

Source: HMRC, UK, 2004–2007.

Notes:

1. Enquiries completed are the number of cases closed with an inspection having been made.

2. The strike rate is the percentage of the cases investigated where non-compliance was found.

4.14 Over the last few years, non-compliance was found in about a third of HMRC investigations, although this figure varies considerably by region. The level of total minimum wage arrears identified has fluctuated quite significantly between years. The average arrears per worker in 2006/07 was £214, up from £130 the year before.

4.15 Figure 4.1 shows the breakdown of complaints by sector over the last three years. The highest number of complaints came from the hospitality sector. We are therefore pleased that the hotel sector was chosen for targeted enforcement in 2007/08, to be followed by the wider hospitality sector in 2008/09. We look at the Government’s programme of targeted enforcement later in this chapter.

Figure 4.1

Number of Complaints of Non-compliance to the NMW Helpline by Sector, UK, 2004–2007

Source: HMRC, UK, 2004–2007.

4.16 We were told that many workers who were paid below the minimum wage were afraid to make a complaint for fear of victimisation or dismissal. During a visit to Northern Ireland we heard from trade unions that minimum wage non-compliance was a growing problem. Citizens Advice Northern Ireland reported that an unacceptable number of employers were failing to comply with the minimum wage and that some workers were too afraid to complain for fear of dismissal. Migrant workers were highlighted as being especially vulnerable.

4.17 In its written evidence, the GMB told us that workers who report underpayment to HMRC were often sacked or victimised. The Scottish Low Pay Unit also raised concern about the tendency for complainants to lose their jobs. It believed that BERR and HMRC should work together to publicise the illegality of dismissing workers for asserting their statutory rights. It recommended that compliance teams be given powers and resources to support workers who make a complaint and are dismissed as a result. Both the TUC and UNISON also recommended that HMRC should have a duty to pursue cases of detriment for workers claiming their minimum wage rights. The National Group on Homeworking raised concerns about the effectiveness of enforcement in tackling non-compliance in relation to homeworkers.

4.18 The TUC called for trade unions to be empowered to do more to help workers to enforce the minimum wage. One of the proposals it put forward, and which was echoed by a number of trade unions, was for HMRC’s confidentiality rules to be amended to enable third parties to be informed of the outcome of complaints.

The Informal Economy

4.19 The size of the informal economy and the extent to which current HMRC enforcement activities can effectively tackle the minimum wage underpayment arising continues to be an area for concern. Although the scale of non-compliance is difficult to determine, there continues to be a perception that the problem is becoming more substantial, particularly in respect of certain groups of workers. The evidence suggests that abuse of the minimum wage normally goes hand-in-hand with other violations of employment rights.

4.20 In our 2007 Report, we noted that reaching those in the informal sector was clearly difficult, particularly where there was collusion between a worker and their employer. Research commissioned for our 2005 Report (Ram, Edwards and Jones, 2004) suggested such collusion could be relatively common in some sectors. For example, a worker might be willing to accept pay below the minimum wage rate in order to remain eligible for working tax credits while receiving some wages on a ‘cash in hand’ basis. The Association of Labour Providers reported that the minimum wage was widely ignored throughout the informal economy, in a manner that seldom disadvantaged workers significantly, but which was at the expense of the taxpayer and legitimate business. It alleged that in many cases workers in the informal economy being paid below the minimum wage were as well off, if not more so, than many workers employed in the formal economy who were paid the minimum wage. It argued that enforcement was too often concentrated on the easy to reach employers, failing to pick up the areas of real abuse.

4.21 The CBI urged us to focus on improving the position of legal employers and workers by improving compliance. It was concerned that any increase in the minimum wage above average earnings would contribute to the ‘pull’ of the informal economy, especially bearing in mind the marginal tax rate that many minimum wage employees face. It reported a significant level of informal working in the hairdressing sector, with around 35,000 people self-employed; a rise of 20 per cent between 1999 and 2004. It was feared that this trend could be exacerbated by an increase in the minimum wage above average earnings.

4.22 A company in the hospitality sector reported that some employers were undoubtedly paying below the minimum wage and that there was a growing cash-in-hand culture, particularly in some small tenanted pubs.

Vulnerable Workers

4.23 In its evidence, the Government noted its commitment to helping vulnerable workers. In 2007 it launched the Vulnerable Worker Enforcement Forum and two Vulnerable Worker Pilots. It set up the forum to help it to ensure that all workers enjoyed their workplace rights in full, and to address enforcement issues where this was not the case. It advised us that its work was at an early stage, but that the enforcement challenges emerging included: what more could be done to raise awareness of enforcement bodies; how to overcome vulnerable workers’ reluctance to complain and enforce their rights; how to improve local intelligence about bad employers and create conditions for more joined-up action by enforcement bodies; and how to create a stronger and more effective deterrent for non-compliant employers.

4.24 The Vulnerable Worker Pilots aim to identify practical ways of improving the advice and support available to vulnerable workers to help ensure they secure their full entitlement to employment rights and to provide opportunities for them to develop new skills. It aims to help employers to understand and comply with the law, as well as taking co-ordinated action against employers who fail to comply with legislation. The pilots operate on a partnership basis, drawing together organisations involved in providing services to vulnerable workers and to employers. One pilot is targeting the support services sector in the City of London and Tower Hamlets and is led by the TUC; the other, led by Marketing Birmingham, is targeting the hospitality sector in Birmingham. The experiences of the pilots will be used to inform Government policy on vulnerable workers.

Migrant Workers

4.25 In Chapter 3 we noted the changes to the labour market as a result of the arrival of a substantial number of migrant workers from the A8 countries. This has given rise to some additional compliance and enforcement issues.

4.26 In response to our consultation this year, we received both specific and anecdotal evidence of migrant workers being paid below the minimum wage and facing problems enforcing their rights. As we found last year, in some cases there appeared to be blatant underpayment of the minimum wage, but more often the problem arose through excessive deductions from pay for accommodation and other services, or because the worker was required to work in excess of their contractual hours which brought their hourly rate below the minimum wage. A number of organisations advised that workers from the A8 countries were particularly vulnerable to exploitation due to language barriers and because many were too afraid to complain for fear of losing their jobs or the threat of violence. Some were unclear about their employment status and this had been used against them.

4.27 Since November 2004, HMRC’s National Minimum Wage team has carried out checks on a sample of employers who use migrant workers. Each month up to 15 employers are selected from around the UK on the basis of a risk assessment and information taken from the Workers Registration Scheme. Between November 2004 and January 2008, 28 per cent of the employers investigated were found to be non-compliant, with arrears of £385,112 identified for 2,742 workers.

4.28 In addition to the many groups of migrants that are entitled to work in the UK, there are others whose status is less clear. These individuals are particularly vulnerable as they fear any attempt to raise the issue of their employment rights could lead to them being deported. During a visit to Dagenham, we were advised that in recent years there had been a significant increase in problems relating to migrants with unclear work status who were subject to minimum wage abuses, as well as other exploitative practices. Unite was one of a number of unions and worker representative groups that also drew attention to the vulnerability of undocumented migrant workers. It argued that no worker should be exempt from basic employment rights and that employers should always face penalties for paying below the minimum wage whether their workers are documented or not.

4.29 To help tackle the problem of illegal migrant workers, in 2005 the Government introduced the Home Office-led Joint Workplace Enforcement Pilot (JWEP). It was launched in the West Midlands as a three-year pilot to explore the scope for closer co-ordinated working between Government workplace enforcement and compliance departments for the purpose of tackling both the use and exploitation of illegal migrant workers. Those involved include the UK Immigration Service, HMRC, BERR (formerly the DTI), the Department for Work and Pensions, the Health and Safety Executive and the Gangmasters Licensing Authority (GLA). This year the Government advised that an initial evaluation of the JWEP was completed during 2006 and the outcomes (based on anecdotal evidence) strengthened the hypothesis that businesses that use illegal migrant labour are likely to be in breach of other workplace regulation. The Government has indicated that, although all bodies involved in the project continue to support it, the pilot will need to be considered alongside existing resource commitments as extensive joint working teams, involving several departments, may not be the most effective strategy for the future. Current indications are that the future of successful joint workplace enforcement will emphasise the need for improved intelligence-sharing and data exchange between appropriate Government departments, to facilitate operations by individual or targeted combinations of workplace enforcement departments. A further report to evaluate the success and future of the JWEP is currently under way and is expected to be completed in early 2008.

4.30 The TUC argued that creating a robust system to help to protect vulnerable workers would need to involve removing the rules and incentives that inhibit closer working between enforcement agencies. It believed there were lessons to be learnt from the JWEP projects, which were reinforced by the emerging finding of the TUC’s Commission on Vulnerable Employment.

4.31 To promote effective intelligence-sharing between departments, the Border and Immigration Agency is considering producing a document setting out key indicators of non-compliance to provide workplace enforcement officers with a set of readily observable characteristics which may indicate workplace abuse. This guidance is to contain information on when and how to share intelligence between Government departments about these abuses of workplace regulations. We strongly welcome this initiative. Effective sharing of information will help to make the best use of finite resources and ensure that they are appropriately targeted on those employers who set out to exploit their workers.

4.32 A common theme of the evidence we received in respect of migrant workers was that those employed through employment agencies were more likely to be exploited. We consider this group next.

Agency Workers

4.33 Our consultation has provided evidence on the treatment of workers, particularly migrant workers, employed through employment agencies. A number of problems were brought to our attention. While most agencies comply fully with the minimum wage, the level of deductions made by some was a particular concern. In the worst cases deductions are used to bring down a worker’s take-home pay to very low levels.

4.34 The TUC reported that the emerging findings of its Commission on Vulnerable Employment and the Government’s Vulnerable Worker Enforcement Forum confirm that many of the problems experienced by migrant workers stem from abuse by unscrupulous employment agencies. Trade unions in Northern Ireland highlighted migrant agency workers as being particularly open to exploitation. We were told that the agency sector in Northern Ireland was highly competitive and this had led to undercutting by some agencies, largely funded through spurious deductions from the pay of migrant workers. Leicester City Council told us that a greater number of agency workers were affected by underpayments, with less likelihood of them receiving subsequent payment because of the transient nature of agency work. It reported a trend for agencies and labour providers to simply close down, sometimes to reappear a few weeks later under a different name.

4.35 Unite advised of an increase in the use of agency migrant labour in the low-paying sectors, with examples of minimum wage underpayment and other bad practices by employment agencies. Enforcement was made more difficult as the agencies often sub-contracted to labour providers further down the supply chain. It argued for the introduction of licensing for employment agencies. UNISON reported on evidence it had collected with London Citizens which showed that unscrupulous employers and employment agencies were continuing to take advantage of migrant workers despite the strengthening of enforcement measures in this area. Both UNISON and the TUC recommended that agency staff be given the same employment conditions as permanent staff and that employment agencies be made a priority target for enforcement.

4.36 The CBI made the point that reputable agencies recognised that the exploitation and abuse of workers by rogue agencies caused serious damage to the good reputation of the sector and fully accepted that non-compliance with the minimum wage, or any other employment right, was unacceptable. It told us that a number of reputable agencies were already working with the relevant enforcement agencies and within the industry itself to address these concerns.

4.37 The research we commissioned by French and Möhrke (2006) for our 2007 Report supports the concerns raised by stakeholders. It found that firms employing migrant workers directly were largely compliant with the minimum wage. However, it also reported, albeit based on a small sample, that where the worker was employed through an agency, there was more likely to be evidence of abuse, in particular under- or non-payment of wages and excessive deductions.

4.38 Last year we came to the conclusion that the introduction of new rules within the minimum wage legislation would not be an effective means to tackle the problem of excessive deductions from pay. Although we continue to be concerned by the evidence presented, we believe this remains the case. In our view, the problems arising are best tackled through effective enforcement.

4.39 In addition to HMRC’s role in enforcing the minimum wage, two other Government bodies have specific responsibilities for enforcement in relation to the agency sector. We look at each in turn.

Employment Agency Standards Inspectorate

4.40 The activities of employment agencies and employment businesses are regulated by the Employment Agencies Act 1973 (as amended) and by the Conduct of Employment Agencies and Employment Business Regulations 2003. The Act is enforced by BERR’s Employment Agency Standards (EAS) Inspectorate.

4.41 Action is being considered by the EAS which will strengthen its ability to enforce the law. The Conduct Regulations covering agencies clearly prohibit the take-up of services as a requirement of being offered work, but the right to withdraw from such services at a later date is less clear. As part of the follow up to the DTI’s Success at Work policy statement (DTI, 2006), in February 2007 the EAS consulted on a range of issues which sought to tighten the regulation and provide greater protection for vulnerable agency workers. This included an amendment to tighten the Regulations to make explicit the worker’s right of withdrawal from a service. BERR published the Government’s response in December 2007 (BERR, 2007c) and Amendment Regulations were made in December and will come into force on 1 April 2008. Further steps are being taken to strengthen the penalty and enforcement regime for employment agencies in the Employment Bill currently going through Parliament. In addition, John Hutton, Secretary of State for BERR announced at the TUC conference in September 2007 that the number of EAS inspectors will be doubled to improve enforcement of employment agencies legislation.

4.42 We have offered our full support to the proposed changes and hope that they will go some way to address the problem of excessive deductions and enable the relevant Government bodies to take appropriate enforcement action when problems arise.

Gangmasters Licensing Authority

4.43 The GLA was set up in April 2005 and aims to curb the exploitation of labour within the agriculture, horticulture, fish processing and shellfish gathering industries, and in the packaging or processing of these products. It became an offence for a gangmaster to operate without a licence in these sectors from October 2006. Since December 2006, it has also been an offence to use an unlicensed gangmaster. There are stiff penalties for operating without a licence – up to a maximum ten years imprisonment and/or a fine on conviction. A labour user engaging an unlicensed labour provider faces up to 51 weeks imprisonment and/or a fine on conviction.

4.44 The GLA’s compliance team is responsible for carrying out compliance inspections on GLA licence holders. The GLA’s Licensing Standards (GLA, 2006), against which licence applications and subsequent compliance inspections are assessed, include key areas of interest to us such as the payment of wages and improper deductions, and workers’ accommodation. The Licensing Standards specifically state that the worker must be ‘paid at least the national or agricultural minimum wage, taking into account the rules on the accommodation offset’ and this standard has been given a ‘critical’ category (the most serious category of non-compliance) by the GLA. In addition to its own compliance team, the GLA works closely with other Government departments and agencies to share intelligence to ensure legal requirements are met and enforced.

4.45 The GLA has been operating for a relatively short period but, according to the evidence we have gathered, it is already held in high regard and is seen to be making a difference. Research by Brindley et al (2007) on behalf of the GLA found that 40 per cent of labour providers felt the GLA had reduced business fraud, and that 45 per cent believed that the GLA had improved working conditions. However, the survey also highlighted perceptions that much work was still to be done, with only 6 per cent of gangmasters believing that worker exploitation was no longer an issue in the GLA sectors. The survey also revealed particular concerns related to ‘Phoenix Gangmasters’ re-emerging after prosecution or bankruptcy. Licensed operators were concerned that more needed to be done to tackle unlicensed gangmasters working under the Government radar.

4.46 UNISON advised that the stricter enforcement of employment legislation arising from the introduction of the GLA had driven gangmasters into other sectors not covered by the GLA, with many employment agencies now effectively acting as gangmasters. It called for the remit of the GLA be widened to include other sectors with a high proportion of migrant workers.

Other Developments in Enforcement

4.47 Over the last few years, there have been a number of positive developments that have sought to improve enforcement of the minimum wage. We look at these below.

Targeted Enforcement

4.48 In 2005 the Government announced a programme of targeted enforcement to tackle non-compliance in each of the low-paying sectors in turn. The initial sector chosen was hairdressing, followed by childcare in 2006/07. This year, the hotel sector is being targeted and the wider hospitality sector has been chosen for 2008/09. The choice of hotels and the hospitality sector addresses the recommendations in our 2006 and 2007 Reports that a low-paying sector employing a significant number of migrant workers be targeted as a priority.

4.49 In its evidence, the Government advised that its officials had met stakeholders representing hotel sector employers and workers to identify the issues relevant to the sector in order to inform the enabling stage of the campaign, including agreeing publicity materials in a variety of languages. In addition to the key messages on the minimum wage, the leaflets produced for the campaign covered wider employment law issues relevant to the sector, for example the increase in statutory annual leave entitlement. The Government advised us that it had taken into account research we commissioned by Croucher and White (2007) which evaluated the first targeted campaign of the hairdressing sector.

4.50 We have noted in the past the need for targeted enforcement to be effectively evaluated to ensure it justifies the extra resource. We are therefore pleased that the Government has allocated a portion of its additional funding for monitoring and enforcement to ensure that the various enforcement strands are properly evaluated.

Criminal Prosecutions

4.51 The National Minimum Wage Act 1998 provides for criminal prosecutions for six offences relating to the minimum wage. These include refusing or wilfully neglecting to pay the minimum wage and furnishing false records or information. The penalty is a fine of up to £5,000 for each offence. The Government had not made use of this provision, but in December 2005 it announced that it would pursue criminal prosecutions in cases where lesser sanctions were not producing compliance. Two successful prosecutions were completed in 2007 and BERR advised that further prosecutions were being taken forward.

4.52 We welcome the progress that has been made, although we must again record our disappointment that only a handful of prosecutions are planned each year. We believe that a tough and systematic approach to prosecutions is required to act as an effective deterrent to employers who persistently flout the minimum wage rules. The TUC made a similar point in its evidence to us. It also argued that the current maximum penalty of £5,000 allowed by the minimum wage legislation is not commensurate with the worst offences uncovered by HMRC. It called for a substantial increase to the current penalties in the National Minimum Wage Act in order to redress this situation.

Penalty Notices

4.53 In January 2007, the Government announced a new policy to fine employers who ignore an official demand to pay the National Minimum Wage through the issue of Penalty Notices, as provided for in the minimum wage legislation. We welcomed this development. The Government advised us that the policy is helping to encourage employers to repay minimum wage arrears more quickly and less time is being spent by HRMC chasing overdue arrears.

A Penalty for Non-compliance and Fair Arrears

4.54 In our 2005 and 2007 Reports we said that a worker paid below the minimum wage could well suffer financial hardship even if arrears were eventually paid, since the worker would not receive any recompense to reflect the late payment, and that this situation needed to be rectified. We also recommended that, as a deterrent to non-compliance, the Government introduce a penalty to apply to any employer found to have underpaid the minimum wage. Early in 2007 the Government accepted our recommendations.

4.55 In May 2007 the Government launched the National Minimum Wage and Employment Agency Standards Enforcement consultation (DTI, 2007d). This proposed a new strategy to deal with cases of underpayment of the minimum wage based on a fairer way of dealing with arrears and a simpler, more effective penalty regime to deter non-compliance. During the consultation, the Government worked closely with us, employer bodies, trade sector representatives and trade unions on the proposals and the consultation document was sent to over 60 organisations. Although views differed as to how the end result could best be achieved, there was strong support for the changes from employer and worker representative organisations alike. The CBI fully supported the Government’s proposals to ensure underpaid workers have better real terms payment. It also supported the introduction of an enhanced penalty regime which would provide employers with an incentive to comply with minimum wage legislation and which would help prevent arrears arising in the first place. The Forum for Private Business also gave its support to the fair arrears proposals and for a penalty that was proportional to the scale of underpayment. The TUC and all trade unions responding to the consultation gave their support to the introduction of a system to ensure fair arrears and a penalty for all non-compliant employers.

4.56 We were pleased to have the opportunity to respond to the consultation and submitted our response on 16 July 2007 (available on our website – www.lowpay.gov.uk). BERR published its response to the consultation in December 2007 (BERR, 2007c) and the new measures are being introduced through the Employment Bill currently going through the parliamentary process.

Employment Tribunals

4.57 The employment tribunal system provides an important means for workers to pursue claims for underpayment of the minimum wage. In 2006/07, there were 806 minimum wage applications registered by tribunals (Employment Tribunals Service, 2007). This is a significantly higher number than registered in the previous two years (440 in 2005/06 and 597 in 2004/05), but direct comparison cannot be made as the way in which data are collated by tribunals has changed.

4.58 The effectiveness of the tribunal system was again raised by some organisations during our consultation. Although there continues to be general support for it, there are growing concerns about the number of employers failing to pay tribunal awards. A tribunal does not have the power to enforce the award and the worker must seek payment through the civil court system.

4.59 Leicester City Council again expressed its concern on this point, noting that awards often went unpaid and for a worker to take action through the civil courts to receive the payment due to them was costly, complex and offered no guarantee of return. No data were available to show the extent of non-payment of tribunal awards in respect of the minimum wage. This issue is not specific, however, to the minimum wage and could also apply to awards made under other jurisdictions. We reiterate our view that for the tribunal system is to be effective, there needs to be a means to tackle robustly and promptly those employers who show no regard to the awards made. We noted in our 2007 Report that proposals in the Tribunals, Courts and Enforcement Bill (Department for Constitutional Affairs, 2006) might help to address some of the problems highlighted. It is too early to say what the impact has been, but we will review this in the coming year.

4.60 The TUC and a number of trade unions called for trade unions to be able to bring cases to employment tribunals on behalf of groups of workers as a means of strengthening workers’ ability to assert their rights to the minimum wage. They argued that the current system whereby a tribunal could only hear a case brought by an individual worker was a barrier to effective enforcement, as many workers with minimum wage problems were afraid to enforce their rights for fear that they would suffer some form of retribution from their employer. The CBI did not support this proposal, pointing out that Employment Tribunals could, under existing powers, choose to hear a number of cases together. The CBI accepted that this fell short of what the TUC was seeking, but was against any move to extend such arrangements so that a number of cases could be joined together under one name.

Resourcing Enforcement Activities

4.61 In December 2006, the Chancellor announced that funding for monitoring and enforcement of the minimum wage would be increased by 50 per cent, an additional £2.9 million in each of the next four years. This is a very positive step forward and should provide the opportunity to increase considerably the impact of enforcement activities.

4.62 BERR has developed what we consider to be a coherent enforcement strategy to make best use of the additional funding, on which we were consulted. We welcomed the opportunity to offer advice. The plan to use the funds includes recruiting 20 new staff; improving communications (we noted earlier that significant additional funding was put into raising awareness of the minimum wage) and undertaking research and evaluation of enforcement work to ensure that effective use is made of the resources available and that these are appropriately focused on priority areas.

Conclusion

4.63 The action that has been taken by the Government to strengthen the enforcement regime has been welcomed by employer and employee alike. We too welcome these developments. We believe that the measures introduced and those in train should have a tangible positive impact. In terms of enforcement, we conclude that the focus in the coming year should be on consolidation to allow time for the initiatives under way to be developed, and for those in the pipeline to be implemented. We therefore do not make any recommendations on minimum wage enforcement in this report. We will monitor developments closely.