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The majority of employers support the minimum wage and comply fully with the legislation, but non-compliance remains a problem. The continued success of the minimum wage is therefore in large part dependent upon its effective enforcement. It is important for the majority of law-abiding employers, as well as for those workers who are denied their legal entitlement, that compliance is policed effectively and non-compliance is dealt with rigorously. Some incidences of minimum wage non-compliance arise through genuine error or misunderstanding. Improving awareness is central to addressing such cases. We recognise that the Government has taken steps to promote greater awareness, but we believe more needs to be done. The situation is perhaps most acute in relation to migrant workers. Despite sharing a common goal, a number of different bodies are currently working independently to raise awareness of employment rights among migrant workers. We believe that a more cohesive approach would help to maximise the impact of the Government's limited minimum wage publicity budget. We therefore recommend that the Government work more collaboratively with other organisations to raise awareness of the minimum wage. While some employers inadvertently fail to comply, there are others who deliberately set out to evade the minimum wage rules. In all likelihood, such rogue employers will also have scant regard for other employment and tax requirements. Many of these employers will be operating in the informal economy and the workers they employ will be those who are particularly vulnerable to exploitation. We are encouraged by recent indications of the Government's desire to strengthen the enforcement regime, but we consider that there is still no effective deterrent to non-compliance and no real disincentive for firms contemplating evading the minimum wage requirements. Non-compliance brings the minimum wage into disrepute and on any substantial scale will erode support for it. As we said in our 2005 Report, we do not find it acceptable that employers who underpay the minimum wage are not penalised as long as they pay up when challenged. Conversely, workers who are underpaid receive no more than their arrears of pay and as a result are worse off in real terms. The Government advised us in January 2007 that it was rejecting the recommendation we made in our 2005 Report to redress this imbalance. Although we understand the reasons given for not taking forward the recommendation, we strongly believe that a workable alternative solution needs to be found. We therefore recommend that, as a deterrent to non-compliance, the Government introduce a penalty to apply to any employer found to have underpaid the minimum wage. We also urge the Government to give further consideration to finding a means to compensate workers who have been underpaid. In addition, we believe that employers who flout their minimum wage obligations should be 'named and shamed'. We support the Government's targeted enforcement programme but continue to believe that HM Revenue and Customs now needs to tackle a more substantial low-paying sector. In our 2006 Report we recommended that a low-paying sector that employed substantial numbers of migrant workers should be targeted, such as agriculture or food processing. In its response, the Government said that it would have been inappropriate to target such a sector for a number of reasons, one of which was a desire to avoid cutting across the work of the Gangmasters Licensing Authority as it was beginning operations. We understand the Government's position but, in the light of growing evidence that migrant workers are at greater risk of exploitation, we again recommend that the Government choose, as part of its enforcement programme, a low-paying sector with a high concentration of migrant workers to target in 2007/08. To avoid cutting across the work of the Gangmasters Licensing Authority, we suggest a focus on either the hospitality or cleaning sector. Effective enforcement is important for both workers and good employers. We therefore warmly welcome the Government's commitment to increase the funding for minimum wage enforcement by 50 per cent, as announced in the Chancellor's pre-Budget Report in December 2006 (HM Treasury, 2006c). We believe this provides the scope to make a significant impact on the enforcement of the minimum wage if appropriately directed. The Government has asked us to contribute to its deliberations on how to get best value from these increased resources and we welcome this opportunity. Introduction 6.1 In our previous reports we have concluded that the vast majority of employers were complying with the minimum wage, but we have highlighted the informal sector as a key area of concern. In this report, we examine again how well the minimum wage is being complied with and how effectively it is being enforced, drawing on the evidence submitted to us, what we have been told during our programme of visits throughout the UK, and our research programme. This year we pay particular attention to the implications for compliance and enforcement of the arrival of a substantial number of migrant workers from central and eastern Europe (the A8 countries) following the enlargement of the European Union (EU) in 2004. 6.2 In this chapter we consider awareness of the minimum wage, the extent of non-compliance and its association with the informal economy, and migrant workers. We go on to examine recent developments in enforcement and consider evidence relating to the Employment Tribunal process. We then address the key area where we believe further action is required the deterrent to non-compliance before concluding by looking at the resourcing of enforcement activities. Awareness 6.3 Awareness is central to the effective enforcement of the minimum wage. The minimum wage is largely self-enforcing and reliant on non-compliance being reported to HM Revenue and Customs (HMRC). Clearly, this can only happen if workers understand their entitlement and how to enforce it. 6.4 The Government accepted the recommendation in our 2005 Report that it review its minimum wage publicity strategy to consider how best to target low-paid workers more proactively, with a particular emphasis on vulnerable groups of workers. In response, it carried out research to gain a better understanding of how best to inform ethnic minority workers about the minimum wage. It used the outcomes to inform the October 2006 upratings publicity campaign, which gave particular emphasis to raising awareness among ethnic minorities, women and young workers, as well as in the childcare sector which is the sector being targeted by HMRC's minimum wage enforcement teams during 2006/07. 6.5 In its evidence this year, the Government referred to the findings of the Department of Trade and Industry (DTI) Employment Rights at Work Survey of Employees 2005 (DTI, 2006f) in support of the effectiveness of its publicity on the minimum wage. The survey found that the vast majority of respondents (95 per cent) knew that workers aged 2265 had a right to the minimum wage and nearly as many (93 per cent) knew that workers aged 1821 were covered. There was, however, less awareness of how the minimum wage applied to those below the age of 18 and above the age of 65. The majority of respondents thought that the minimum wage rates were higher than the actual rates at the time of the survey. ' He's over 65, so the national minimum wage doesn't apply. '
6.6 We do not want to see overall awareness of the minimum wage diminish. The DTI's minimum wage publicity budget was substantially reduced in 2006/07. The DTI told us that this did not signify a lowering of the priority given to raising awareness, rather it reflected a more strategic approach to publicity developed in the light of its experience of the most effective ways to bring the minimum wage to the attention of vulnerable groups of workers. We have previously noted that, although awareness of the minimum wage is generally high, awareness of the specific rates is lower. Ensuring all affected workers know when the minimum wage rates are increased and to what level is essential if the minimum wage is to continue to be largely self-enforcing. While we do not believe that an effective publicity programme is necessarily dependent on the amount of money spent, we are concerned that the cut in publicity funding could be detrimental to the effectiveness of enforcement. We consider the resourcing of the Government's minimum wage enforcement effort later in this chapter. 6.7 The importance of awareness has been heightened by the arrival of a substantial number of migrant workers from the A8 countries since 2004. These workers are concentrated at the low-paid end of the labour market and many are more vulnerable to exploitation in the workplace than other workers, as they are less likely to be aware of their employment rights, including their entitlement to the National Minimum Wage. Raising awareness of the minimum wage among this group of workers has presented new challenges for the Government. 6.8 The Government has advised us of the work it has undertaken to inform migrant workers from the A8, as well as other migrant workers, of their rights to the minimum wage. It has produced information leaflets entitled 'Know Before You Go' in Polish, Lithuanian and Portuguese that have been disseminated in the respective countries and is seeking to work with other EU member states in a similar way. We fully support this approach, particularly as there is evidence that many workers sign up to employment contracts for work in the UK prior to arrival and that some of these contracts are clearly exploitative. 6.9 The DTI has also distributed information on the minimum wage and other employment rights in the UK through a variety of migrant organisations, including local community and church groups. Anecdotal evidence from our recent visits suggests that awareness among some migrant groups, and in particular Polish migrants, has increased as they have become more established in the UK and as local networks have developed. 6.10 HMRC's minimum wage helpline has for a number of years operated a 'language line' that caters for those who need help with communicating their requests for information or to make a complaint. This service is available to help migrant workers, as well as others who are unable to communicate in English. The Government has also advised us of the launch of the website Direct.gov.uk/employees to provide a central, accessible resource for individuals seeking information about their employment rights and responsibilities. The site had been developed to be user-friendly to individuals for whom English is their second language. A basic overview of how employment rights work in the UK has been included to assist migrant workers. 6.11 While we recognise the considerable efforts made by the Government to promote greater awareness, from the evidence we have considered in the course of the past year it is apparent to us that still more needs to be done. A number of groups highlighted to us the significant incidence of ignorance of the minimum wage rules among migrant workers. We heard from some organisations, such as the TUC and the Recruitment & Employment Confederation (REC), of the work that they have been doing to raise awareness of employment rights, in some cases with support from the Government. Indeed, there appear to be a number of organisations that share the common goal of ensuring migrant workers are made aware of their employment rights, but there appears to be little co-ordination in the work they are doing. This is likely to lead to duplication of effort. A more cohesive approach by the Government would help to make the most of its limited minimum wage publicity budget. Such an approach would also help to avoid any confusion arising from the availability of a range of different materials. We therefore recommend that the Government work more collaboratively with other organisations to raise awareness of the minimum wage. Non-compliance 6.12 Although it is accepted that the majority of employers comply with the minimum wage, we do not know the extent of undetected non-compliance. The Office for National Statistics (ONS) estimates that in April 2006, 336,000 jobs paid below the minimum wage (around 1.3 per cent of all jobs). However, for a number of reasons this figure cannot be used to determine the number of workers who are unlawfully paid below the minimum wage; for example, it will include apprentices covered by the minimum wage exemptions, those legitimately subject to the accommodation offset deductor, and also piece workers, whose productivity is below the piece rate threshold. Conversely, there will be workers who are not receiving the minimum wage but who do not show up in the official statistics, such as 'cash in hand' workers. We have therefore drawn on other information sources in our assessment of non-compliance, such as the work of HMRC's minimum wage team and evidence from our consultation and research. 6.13 First we look at HMRC's enforcement activities. Table 6.1 shows that over 61,000 enquiries were received by the HMRC Helpline during 2005/06, an increase of 7 per cent over 2004/05 and 15 per cent when compared with the number of calls received in 2003/04. Over 2,100 complaints about non-payment of the minimum wage were received in 2005/06, an increase of 7 per cent over 2003/04 and 10 per cent over 2004/05. HMRC completed around 4,900 investigations into minimum wage underpayment in 2005/06, which arose either from complaints made by a worker or a third party, or were identified through its risk assessments of employers that were considered most likely to be non-compliant. The Government advised that the number of completed investigations in each of the last three years has decreased, largely due to the increased complexity and technical nature of many of the investigations being undertaken. Table 6.1 National Minimum Wage: Enquiries and Complaints to the Inland Revenue/HMRC, and Enforcement Action Taken, 20032006
Source: DTI, HMRC, UK, 20032006. Note: 6.14 The incidence of non-compliance found during HMRC investigations has fallen over the last few years from 39 per cent in 2003/04 to 32 per cent in 2005/06. The total arrears identified have fluctuated quite significantly between years: arrears totalling just over £2.5 million were identified in 2003/04, rising to nearly £3.8 million in 2004/05, but subsequently dropping in 2005/06 to just below £3.3 million. The average arrears per worker in 2005/06 was £130, considerably lower than in the previous two years, mostly due to an increase in the number of workers involved in the cases where non-compliance was found. There were 2,211 cases of employer non-compliance found in 2003/04 which involved a total of 9,428 workers, whereas there were only 1,582 cases in 2005/06, but they involved 25,314 workers. A relatively few large cases, in terms of arrears or workers, can have a major impact on the results. 6.15 Figure 6.1 shows the breakdown of complaints by sector over the last three years. The hairdressing and hospitality sectors both saw a substantial increase in complaints over this period (41 per cent and 28 per cent respectively). The increase in complaints from the hairdressing sector between 2004/05 and 2005/06 was particularly marked at 36 per cent, but reflects HMRC's targeted enforcement campaign in the hairdressing sector (which we look at in more detail below). The reason for the increase in complaints in the hospitality sector is unclear. ' ... enforcement will become a major issue this year. We believe this for two reasons. First the increase in the minimum wage may well be enough by itself for more employers to try to evade paying the new rate. Second ... the increasing use of migrant labour in the UK economy. '
Figure 6.1 Complaints to the HMRC Minimum Wage Helpline by Sector, UK, 20032006
Source: HMRC, UK, 20032006. 6.16 There is a danger that the credibility of the minimum wage could be harmed if non-compliant employers are able to evade paying minimum wage arrears, or if they continue to be non-compliant following enforcement action by HMRC. Previous work by HMRC resulted in new checks to ensure arrears were paid following an investigation and the adoption of a risk-based approach that seeks to identify employers most at risk of returning to non-compliance. Where non-compliance persists, HMRC will now consider the option to prosecute repeat offenders, as we outline below. 6.17 We welcome this determination to tackle recalcitrant employers, especially as evidence presented to us during our consultations over the last few years has highlighted the ongoing problem of non-compliance. Although by its very nature the scale of non-compliance is difficult to determine, there is a perception that the problem might be growing, particularly in respect of certain groups of workers. 6.18 Leicester City Council (LCC) advised us that its experience of encouraging take-up of the minimum wage suggested that underpayment was endemic in some communities, particularly those with high densities of ethnic minority populations. However, it has found it increasingly difficult to persuade underpaid workers to make a formal claim for the minimum wage, and suggested that one reason for this was an increased perception that minimum wage enforcement was weak. The National Group on Homeworking (NGH) raised concerns about the effectiveness of enforcement in tackling non-compliance in relation to homeworkers, as detailed in Chapter 4. The Informal Economy ' Enforcement/Compliance has not been strengthened despite numerous assurances and commitments by the Government. Whilst acknowledging the success of the NMW the legislation continues to let down workers in low paid industries, particularly in the informal sector. ' 6.19 The extent to which current enforcement activities can effectively tackle minimum wage underpayment in the informal economy is of concern. This has been an issue over a number of years, but was further highlighted this year in relation to the exploitation of migrant workers. It has been suggested that enforcement is too often concentrated on the easy to reach employers rather than those who run more covert employment operations. ' From organisations working directly with migrant workers, we regularly hear reports that they are specifically warned by their employers (or agencies) not to approach a Citizens Advice Bureau for advice. Such is the fear of victimisation and dismissal amongst such workers that they are fearful of making even an anonymous or third party complaint to the NMW Helpline. ' Oxfam evidence 6.20 Reaching those in the informal sector is clearly difficult and it is a problem faced by other Government enforcement teams, such as the Health and Safety Executive (HSE) and HMRC's tax officers. Enforcement is particularly difficult in cases where there is collusion between employers and workers. Research commissioned for our 2005 Report (Ram, Edwards and Jones, 2004) suggested such collusion could be relatively common in some sectors and that there were a variety of reasons why a worker might be willing to accept pay below the minimum wage rate, for example to remain eligible for working tax credits while receiving some wages on a 'cash in hand' basis. 6.21 We received anecdotal evidence suggesting that an increase in the number of migrant workers, both those legally entitled to work in the UK and those here illegally, was exacerbating the difficulties of enforcement in the informal economy. These workers tended to be less aware of their employment rights, and were less likely to complain about infringements of these rights. 6.22 To help tackle the problem of illegal migrant workers the Government introduced the Home Office-led Joint Workplace Enforcement Pilot (JWEP). It was launched in the West Midlands on 5 September 2005 as a three-year pilot to explore the scope for closer coordinated 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, the DTI, the Department for Work and Pensions, the HSE and the Gangmasters Licensing Authority (GLA). 6.23 The pilot is considered by the Government to be progressing well, with the foundations in place for full joint enforcement and compliance activity. Data sharing gateways have been opened between all departments involved in the JWEP. However, the project is still in its infancy and it is too early to assess whether the JWEP model will provide better and more cost-effective results compared with departments working independently. While we are frustrated that the rate of progress is not swifter, we do believe that such a collaborative approach to enforcement is a very positive step forward. We will continue to monitor developments with interest and hope to able to report concrete outcomes in our next report. Migrant Workers 6.24 In Chapter 4 we looked at the changes in the labour market as a result of the arrival of migrant workers from the eight central and eastern European accession countries. We received a substantial body of evidence in response to our consultation, and during our visits throughout the UK to meet employers, workers and their representatives, about the problems being faced by migrant workers. We received specific and anecdotal evidence of minimum wage underpayment. Although in some cases the hourly rates of pay were evidently below the minimum wage, in others the position was less clear. For example, the weekly rate of pay was set at or above the level of the minimum wage, but the worker was required to work in excess of his or her contracted hours which brought the hourly rate below the minimum wage. However, the key problem highlighted was of excessive deductions from pay for accommodation and other services. This issue arose particularly in relation to migrant workers employed through agencies and we explore it further below. 'The workers can't speak English' and 'they can't cope on their own and it's more than they would get in their own country.'
6.25 The research we commissioned by French and Möhrke (2006) 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 evidence of abuse, in particular under or non-payment of wages and excessive deductions.
6.26 Since November 2004, HMRC's minimum wage team has carried out checks on a sample of employers who use migrant workers. Each month 15 employers are selected from around the UK on the basis of a risk assessment and using information taken from the Workers Registration Scheme. Between November 2004 and December 2006, 20 per cent of the employers investigated were found to be non-compliant, with arrears of £144,000 identified for 1,171 workers. Agency Workers 6.27 The evidence we received in respect of workers employed through agencies or gangmasters highlighted a number of problems, as noted in Chapter 4, nearly all in respect of migrant agency workers and it is this group that we concentrate on here. We were informed that these workers were often particularly vulnerable to exploitation as they were less aware of their employment rights or less likely to enforce them for fear of losing their job. While most agencies comply fully with the minimum wage, the level of deductions made by some was the key concern and anecdotal evidence suggested that in the worst cases these could reduce take-home pay to very low levels. 6.28 The TUC suggested that many of the problems faced by migrant workers were associated with employment agencies and was concerned that, as well as abuse of the accommodation offset, '... many employers and employment agencies make illegal deductions for transport, meals, utilities and even so-called "administrative fees" in the case of some employment agencies'. It called for such practices to be stamped out. The Transport and General Workers' Union (T&G) raised similar concerns. The French and Möhrke research found that some agencies used the provision of services as a means to deduct substantial sums from migrant workers' pay at source, often in exchange for poor quality accommodation or even for services that were not in fact provided. 6.29 LCC also noted that agency workers, particularly migrants, were less aware of their rights and reluctant to complain in case they received no more work. It was concerned about reports of workers being offered services as an option, when in effect they had little real choice but to accept them. 6.30 Problems experienced by migrant agency workers were also raised when we met the London Citizens Workers' Association (LCWA). It advised that exploitation of agency workers in London, in particular cleaning, catering and security staff, most of whom were migrants, was widespread in the hotel sector and in museums and universities. There was a range of problems arising, including piece-rate work for cleaning where making the minimum wage in the allocated time would be impossible and reports of 23 days of unpaid training, illegal deductions from pay and inaccurate payslips. The LCWA advised that there was a growing use of contractors and agencies by mainstream employers (in the public and private sectors) and that this was creating a distance between the ultimate customer and responsibility for workers' welfare. 6.31 We are concerned by the evidence that has been presented. However, we do not believe that the introduction of new rules within the minimum wage legislation would be an effective means to tackle the problem of excessive deductions from pay. In the case of accommodation, specific protection already exists in the form of the offset, although we know that there is some non-compliance. The National Minimum Wage Regulations make clear that deductions for uniforms and other equipment or tools required for the job, or any deduction which is for the employer's own use or benefit, must not bring pay below the minimum wage. For other goods and services, the regulations require that workers must have freely chosen to purchase goods (such as meals) or services (such as transport) from the employer. ' ... [there are reports of] agencies supposedly giving workers a choice but then changing shift patterns or not offering them work if they choose to make that choice. ' 6.32 To regulate further against excessive deductions would require the development of a general test of whether a worker had a genuine free choice. Herein lies the difficulty. The lack of a simple and robust test of choice, as we noted last year in respect of the accommodation offset, would apply equally to other services and goods. Also, any changes would be likely to affect adversely those workers who genuinely wished to purchase goods and services from their employer (for example discounted goods). Instead, we propose that in tackling excessive deductions, the emphasis should be on effective enforcement. Where deductions bring the level of pay below the minimum wage, HMRC or an Employment Tribunal has a role in determining whether the worker has been underpaid or if there was a genuine choice to purchase the goods and services in question from the employer. 6.33 Two Government bodies have specific responsibilities for enforcement in relation to the agency sector, in addition to HMRC's role in enforcing the minimum wage. We look at each in turn. Employment Agency Standards Inspectorate 6.34 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 the DTI's Employment Agency Standards (EAS) Inspectorate. It operates a helpline and has twelve regionally based inspectors who have the power to inspect premises and check relevant records or documents. The EAS Inspectors follow up complaints made and carry out random checks. Ultimately agencies can be fined £5,000 per offence and a company or an individual can be prohibited from carrying on an agency business for up to ten years. The EAS inspectorate has an important role in taking action against agencies that impose charges for services as a condition of employment. 6.35 As part of the follow up to the DTI's Success at Work policy statement (DTI, 2006e), an amendment to the Conduct Regulations covering agencies is proposed. At present the Regulations 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. Consideration is being given to an amendment that will seek to tighten the Regulations to make explicit the worker's right of withdrawal from a service (DTI, 2007g). Although this on its own will not address the problem of excessive deductions, it will provide helpful clarification and assist the relevant Government bodies to take appropriate enforcement action. Gangmasters Licensing Authority 6.36 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, or in the packaging or processing of these products. The GLA has been processing applications for licences from labour providers since April 2006, but it did not become an offence to operate without a licence until October 2006. From December 2006 it was also 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. 6.37 The GLA's compliance team is responsible for carrying out compliance inspections on GLA licence holders, using risk-based assessments coupled with a random element to identify those to be inspected. 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). 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. Developments in Enforcement 6.38 In this section we consider the work that is being taken forward to improve enforcement of the minimum wage. Targeted Enforcement 6.39 In 2005 the Government announced a strategy of targeted enforcement in the low-paying sectors (DTI, 2005a). The aim of this strategy is to improve compliance by raising the profile of the minimum wage in each sector in turn and by addressing sector-specific minimum wage concerns, followed by an enforcement drive, encouraging workers paid below the minimum wage to come forward. Hairdressing was selected as the first sector to be targeted. 6.40 In its evidence, the Government advised that during the hairdressing sector campaign there were 629 compliance cases registered 368 selected as part of the project and the remaining 261 arising from complaints from workers or based on third party information. Five hundred and four cases had been investigated and closed. Of these, around half of the employers were found to be non-compliant, with arrears of £380,000 identified for 491 workers, the vast majority of whom were women. In a significant number of the cases where underpayment was found, it related to apprenticeships or training, for example failure to increase the rate of pay at the end of the apprenticeship period. 6.41 Working with the DTI and HMRC, we commissioned research by Croucher and White (2007) to examine the effectiveness of the targeted enforcement campaign in raising awareness and understanding of the minimum wage in the hairdressing sector. The findings suggest that the campaign has been a modest success, but that overall awareness of the minimum wage among both employers and staff in this sector remains patchy. Trainees in particular had low levels of awareness and understanding of the minimum wage. This was the first targeted enforcement campaign and, as would be expected, it has flagged up some areas for improvement. We have shared the findings of this research with the DTI and HMRC and hope that they will find them helpful in informing future campaigns. The Government's initial assessment of the first campaign is that it has been successful, but it has recognised the need to evaluate the outcome further, drawing on the findings of the Croucher and White research. 6.42 In July 2006 the DTI announced that the childcare sector had been chosen as the second sector for targeted enforcement during 2006/07 (DTI, 2006g). It noted that targeting this sector fitted well with the wider Government initiative to improve childcare services and a recommendation by the Women and Work Commission in 2006 that 'targeted enforcement of the National Minimum Wage should be directed at sectors employing large numbers of women' (Women and Work Commission, 2006). 6.43 While we fully support the targeted enforcement programme, we have previously expressed the view that HMRC needs to tackle a substantial low-paying sector at the earliest opportunity. In our 2006 Report we recommended that a low-paying sector that employed a substantial number of migrant workers, such as agriculture or food processing and packing, should be targeted as a priority within the programme. In its evidence, the Government confirmed its support for this recommendation for the longer term, but concluded that it would be inappropriate to target such a sector in 2006/07 for a number of reasons. In particular, a delay would enable revised guidance on the accommodation offset to be issued; would avoid tackling a sector likely to have high levels of illegal working until the Government could take advantage of the lessons and outcomes from the JWEP; and lastly would avoid targeting a sector which would cut across the work of the GLA. The Government advised that these issues would be reviewed during 2007 when it considered the next sector for targeted enforcement. 6.44 While we can understand the Government's position, we believe that the evidence of exploitation of migrant workers is compelling and has heightened our belief that it needs to be addressed as a priority. Therefore we recommend that the Government, as part of its enforcement programme, choose a low-paying sector to target in 2007/08 that has a high concentration of migrant workers. To avoid cutting across the work of the GLA at this early stage in its operation, we suggest that either the hospitality or cleaning sector, where there is evidence of abuse of migrant workers, would be an appropriate alternative to the sectors recommended last year. Enforcement and Penalty Notices 6.45 In our 2005 Report we reported on a package of technical measures that the Government was introducing in the Employment Relations Act 2005 to help enforcement of the minimum wage. Two of the measures related to the treatment of Enforcement Notices. Under the 1998 National Minimum Wage Act, compliance officers were unable to withdraw enforcement notices, which set out arrears due to workers, even if new evidence came to light or an error had been made. The position was the same for Penalty Notices issued to employers who refused to comply with Enforcement Notices and the only way for notices to be rectified was through an Employment Tribunal. This created a number of enforcement problems which were subsequently addressed by the 2005 Act. 6.46 The Government has since reviewed the use of Enforcement and Penalty Notices and in January 2007 it announced a new policy to fine, on a consistent basis, 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 welcome this development. Criminal Prosecutions 6.47 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. To date the Government has not taken forward any criminal prosecutions under the minimum wage. However, it confirmed in its evidence that, in December 2005, the DTI had agreed a criminal prosecutions strategy with HMRC and the Revenue and Customs Prosecutions Office (RCPO) and that a dedicated team had been recruited within HMRC to investigate cases for criminal prosecutions. HMRC compliance officers have put a number of cases to the prosecutions team for consideration and a few have been submitted to the RCPO to examine with a view to taking them through to criminal prosecution. 6.48 We welcome the Government's commitment to prosecute those employers who persistently flout the minimum wage rules. We are also pleased that the Government proposes to publicise these cases widely as a deterrent to others. However, the proposal to take forward only a handful of prosecutions each year is disappointing and we are not convinced that it will be sufficient to serve as a deterrent to seriously non-compliant employers. Employers contemplating non-compliance need to know that there is a real risk that they will be prosecuted if they commit one or more offences under the National Minimum Wage Act. Only by adopting a tough and systematic approach to prosecutions is this likely to be achieved. We consider other elements of the deterrent to non-compliance later in this chapter. Employment Tribunals 6.49 The employment tribunal system provides an important means for workers to pursue claims for underpayment of the minimum wage. In 2005/06, there were 440 minimum wage applications registered by tribunals. This is fewer than the number registered in previous years, but direct comparison cannot be made as the way in which data are collated by tribunals has changed. 6.50 The effectiveness of the tribunal system was raised by some organisations during our consultation. There was general support for it, but there was a growing concern 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. Although tribunal awards were seen by consultation respondents as a good enforcement tool, with publicised successes sending an important message to employers, there were fears that this could be undermined if no action was taken against employers who failed to pay tribunal awards. 6.51 LCC advised that the Leicester Minimum Wage Project had obtained 12 successful tribunal decisions on behalf of workers, but that none of the awards had been paid. It highlighted that for a worker to take action through the civil courts to enforce an award was costly, complex and offered no guarantee of return. ' ... the Employment Tribunal system is fundamentally weak if an employer wants to avoid meeting his/her statutory obligations there is practically an open door for them to do so. ' ' ... most workers fear to be the first to submit an ET [Employment Tribunal] application. This is one reason why silence may reign even in workplaces where dozens of workers are being underpaid. ' 6.52 No data are available to show the extent of non-payment of tribunal awards in respect of the minimum wage, but we share the concerns raised in our consultation about the need to tackle robustly those employers who show no regard to the awards made. We understand that this issue is not specific to the minimum wage, but could also apply to awards made under other jurisdictions. The Tribunals, Courts and Enforcement Bill (Department for Constitutional Affairs, 2006) currently going through Parliament includes proposals that might help to address some of the problems highlighted. We will monitor developments closely. 6.53 The TUC also noted that tribunals could only hear cases brought by individual workers and argued that this was a strong barrier to effective enforcement. It suggested that many workers with minimum wage problems were too scared to enforce their rights for fear that they would suffer some form of retribution from their employer. It 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. Deterrent to Non-compliance 6.54 There are a range of measures that already exist under the minimum wage legislation to penalise employers who do not adhere to the requirements of the minimum wage. To date, however, they have been little used. We therefore welcome the Government's recent commitment to address this. We have noted how criminal prosecutions are being taken forward and the Government's new policy to fine on a consistent basis employers who ignore an official demand to pay the National Minimum Wage through the issue of Penalty Notices. Both developments are a positive step forward, but we do not believe they go far enough. 6.55 Employers who make good minimum wage arrears identified by HMRC within a prescribed timescale do not suffer any financial penalty. Conversely, the workers who receive arrears of pay do not receive any recompense for the fact they have been underpaid. In our 2005 Report, we sought to address this disparity by recommending that interest charges be payable on arrears arising from minimum wage underpayment. However, the Government advised early in 2007 that, after careful consideration, it had decided to reject this recommendation. It explained that, in addition to practical difficulties in taking it forward, the amounts of interest that could reasonably be levied would be insufficient to act as a real deterrent to employers. 6.56 We are disappointed that our recommendation was not accepted. Although we understand some of the practical difficulties it presented, we are not persuaded that the small sums of money that on average would arise through interest being payable on minimum wage arrears is justification not to take action. We continue to believe that a worker who has been underpaid the minimum wage has a right to be compensated. The requirement for the employer simply to repay the money that the worker should have received at the outset is insufficient. We have been told that some employers deliberately delay payment knowing that as long as they pay in the end there will be no adverse consequences for them. In the meantime, they may have accrued interest on the underpaid wages, which might be considered as equivalent to the worker providing the employer with an interest free loan. A means therefore needs to be found to address this imbalance and we urge the Government to give further consideration to how this could best be tackled. 6.57 The lack of an effective deterrent was raised several times during our consultation. Community called for much stronger penalties, to include a large fine and interest on the amount owed to the employee. It also wanted defaulting employers to be named and shamed. The T&G believed that companies should be fined sufficiently to penalise non-compliance and to provide a real disincentive. It called for such fines to be used to fund further enforcement activity. It also supported the introduction of a 'name and shame' policy. 6.58 The TUC noted that taking forward prosecutions was a good step, and hoped it would send a strong message to employers. However, it argued that the maximum penalty allowed by the law was not commensurate with the worst offences uncovered by HMRC. It called for a substantial increase to the current penalties under the minimum wage legislation. 'There is an incentive not to pay NMW for unscrupulous employers because if found out (and it still is a big 'if'), there is only a slap over the wrist if they are prepared to fund the arrears. ' ' The maximum penalty of £5,000 is very low indeed when compared with, say, the law that protects trademarks, where the maximum penalty is an unlimited fine and up to 10 years in prison. The maximum penalties for denying low paid workers the minimum wage should value their rights in a similar way to the value put on the right of companies to protect their trademarks, which means a substantial increase to the current penalties in the NMW Act. ' 6.59 We believe it is essential that employers who underpay the minimum wage are penalised to an appropriate degree. At present, however, the minimum wage legislation has no provision to enable this so long as the employer makes good minimum wage arrears within a prescribed timescale; only those who refuse to pay arrears might have a penalty applied. This in effect means that there is no deterrent to non-compliance and is unacceptable. We recommend that, as a deterrent to non-compliance, the Government introduce a penalty to apply to any employer found to have underpaid the minimum wage. We also believe that a consistent 'name and shame' policy should be put in place to expose those employers who show wilful disregard for the minimum wage. 6.60 An independent review of penalties for failure to comply with regulatory obligations, led by Richard Macrory, Professor of Environmental Law at University College London, was published in November 2006 (Macrory, 2006). The review found that the current system is heavily reliant on criminal prosecution and that the use of administrative fines and other non-criminal penalties could resolve some cases more quickly and effectively. It recommended the use of financial penalties that deter non-compliance and change behaviour as part of a flexible enforcement regime. Although the National Minimum Wage is outside the scope of the review, the DTI has advised that its enforcement regime is being developed in line with the Macrory principles. We hope that the review will add impetus to our call for an effective deterrent to minimum wage non-compliance. Resourcing Enforcement Activities 6.61 We recognise the valuable work carried out by HMRC and its efforts to develop the effectiveness of its enforcement activities. To be able to continue to tackle non-compliance successfully, it needs to be resourced appropriately. We therefore welcomed the Chancellor of the Exchequer's pre-Budget announcement in December 2006 (HM Treasury, 2006c) that funding for enforcement of the minimum wage is to be increased by 50 per cent. 6.62 We have noted above a concern that, as the minimum wage increases, more employers will be tempted to underpay, particularly if there is no real penalty attached to non-compliance. Some unscrupulous employers will have become more adept at avoiding payment of the minimum wage and the time needed by HMRC to tackle these employers will inevitably increase, as noted by the Government in its evidence. The development of targeted enforcement, although positive, has so far not been assigned any additional resources and therefore has reduced the resources available for other enforcement activities. We have also looked in this report at the changes in the labour market due to the increase in the number of migrant workers and the particular difficulties that have arisen as a result. ' Public and Commercial Services Union members in Her Majesty's Revenue and Customs enforce the NMW. To do so they need to be given full and adequate training and resources to carry out this important role. ' ' STUC believes that now is an appropriate time to commit further resources to enforcement, particularly in light of the growing evidence of abuse in relation to migrant workers. ' 6.63 A number of organisations called for an increase in resources to enforce the minimum wage in their evidence to us. Usdaw believed that enforcement should be given greater priority as it was likely that more employers would evade paying the minimum wage as the rates increased, and as the number of migrant workers grew. Community pointed out that the budget for enforcement had been frozen for a number of years and suggested that this had assisted unscrupulous employers. Oxfam expressed the view that HMRC's minimum wage enforcement team was under-resourced to deal with the scale and complexity of non-compliance by employers of both migrants and homeworkers working in the informal economy, as well as in sectors of the formal economy where margins were particularly tight and therefore there was a greater incentive to underpay the minimum wage. 6.64 The Government's additional funding for minimum wage enforcement is encouraging and should provide the opportunity to increase considerably the impact of enforcement activities. It is crucial, however, that it is directed appropriately. We are pleased that the Government has sought our input to its deliberations about how to get best value from these increased resources. Conclusion 6.65 In this chapter we have highlighted a number of positive developments in relation to awareness and enforcement of the minimum wage. We have described the significant efforts to improve awareness of the minimum wage, as well as understanding of other employment rights, among migrant and other vulnerable groups of workers. But we have also concluded that more needs to be done in order to maintain support for the minimum wage from the vast majority of law-abiding employers and from workers. We believe that the steps we have recommended in this chapter will strengthen both the effectiveness of enforcement and the deterrent to non-compliance, helping to ensure that more workers benefit from the minimum wage upratings that we recommend in the next chapter. |
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