Compliance and Enforcement

7.1 The Commission has always maintained that compliance and rigorous enforcement are essential to the success of the minimum wage. Our view has not changed. Indeed, in the current economic circumstances and with businesses under increasing pressure, those in low-paying sectors (potentially the most vulnerable workers) may increasingly become a target for exploitation. It is important, therefore, that compliance and enforcement continue to be high priorities and receives the necessary attention and funding.

7.2 Over the last few years, we have paid close attention to the work the Government has done to strengthen the enforcement regime. We have made a number of recommendations on enforcement and highlighted areas where we believe shortfalls existed. Some of the concerns we had were the lack of resources for enforcement activities, a lack of awareness of the minimum wage among vulnerable workers, and the absence of prosecutions undertaken and of compensation paid to workers who had been paid less than the minimum wage. We are encouraged that the Government has responded positively to these concerns. Some of the actions taken by the Government to strengthen the enforcement regime include increasing funding by 50 per cent for each year until 2011, introducing a programme of targeted enforcement, establishing a prosecution strategy, and setting up vulnerable worker pilots.

7.3 In this chapter we examine how effectively the minimum wage is being enforced and the levels of compliance around the UK, drawing both on written evidence and our visits programme. We report on changes that have taken place, particularly in relation to the enforcement activities of HM Revenue & Customs (HMRC), and we look at changes that came into force in April 2009. We also look at enforcement in relation to groups that are particularly vulnerable.

7.4 Although we acknowledge that progress has been made in strengthening the enforcement regime, there can be no room for complacency. The changes that came into force in 2009 are welcome, but these alone will not stop all the abuse. There will undoubtedly continue to be some employers who will flout the law, for example those who operate in the informal economy, and these are the ones who must be targeted, especially since the pull of the informal economy will become greater during times of recession.

Awareness

7.5 Central to the effective enforcement of the minimum wage is a high level of awareness, both for workers and employers. Workers need to understand their entitlement and how to enforce it. Employers need to understand their liability for paying the minimum wage. We have made a number of recommendations on raising awareness since the minimum wage was introduced and these have been acted upon by the Government. We continue to receive evidence that progress has been made in raising awareness of the minimum wage. But there remains some concern about whether those who are particularly vulnerable (e.g. migrant workers) are hearing the message.

7.6 In our 2008 Report we noted that some organisations continued to raise concern about the low levels of awareness of the minimum wage. The Department for Business, Enterprise and Regulatory Reform (BERR) had allocated a substantial increase in the funding for publicity in 2007/08 and it committed to maintain this at an appropriate level going forward.

7.7 In its evidence this year, BERR informed us that the communications budget for 2007/08 was around £1.2 million and that its approach had been to undertake five co-ordinated campaigns over a six month period from October 2007 to March 2008. The campaigns focused on raising awareness, online activity, migrant workers and a face-to-face outreach programme. BERR used a number of different means to communicate, including radio advertising, posters, an outreach bus and an online campaign.

7.8 BERR reported that the bus campaign received press coverage across 32 different newspapers. Visibility figures show that more than 700,000 people actually saw the bus and the team issued over 130,000 leaflets and had communications with more than 87,000 people. Figures from the HMRC helpline show that calls to the language line increased by 400 per cent during the weeks of the campaign. BERR’s research showed that, during this period, levels of awareness of the minimum wage rose from 89 per cent to 91 per cent and that awareness levels of the different age rates rose significantly from 10 per cent to 70 per cent.

7.9 Another communications campaign is being run in 2008/09. From experience gained in the previous campaign, the Government has advised that it will choose channels that allow them to impart more detailed information. As with 2007/08, the focus of the campaign for 2008/09 will be migrant workers, young people and employers. It will be run through the use of radio, posters and the internet as well as a more general campaign aimed at raising awareness.

7.10 In its evidence this year, Canterbury College Students’ Union advised that not all young people know about the minimum wage and that it should be publicised more, with clearer information about to whom to complain if workers are not being paid the minimum wage. The GMB expressed support for BERR’s plans for more regional publicity awareness campaigns and have offered assistance to BERR through their regional offices.

7.11 We recognise that considerable efforts have been made by the Government to promote greater awareness and that this work would continue in 2008/09. As awareness of the minimum wage among workers increases, the Government will need to ensure it focuses its attention on those who are not receiving the message. Efforts to raise awareness must continue to be focused on those groups who are particularly vulnerable and those who are the hardest to reach. We note the work undertaken in this area and will continue to monitor progress.

Non-compliance

7.12 Although it is accepted that the majority of employers comply with the minimum wage, we do not know the extent of undetected non-compliance. Official statistics estimate that around 288,000 jobs were paid below the minimum wage in April 2008. This figure cannot be used to determine non-compliance, however, as there are legitimate reasons for paying below the minimum wage (e.g. it could include apprentices exempt from the minimum wage and those legitimately subject to the accommodation offset).

7.13 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. As with previous years, we have no way to determine the extent of such non-compliance, so in our assessment we have drawn on the work of HMRC’s enforcement team and the evidence from our consultation.

7.14 First, we look at HMRC’s enforcement activities. Table 7.1 shows that over 46,000 enquiries were received by the HMRC helpline during 2007/08. This is a decrease of 10 per cent on 2006/07 and 24 per cent on 2005/06. Although there has been a drop in the number of calls to the helpline in 2007/08, the number of complaints of non-payment has increased substantially. Over 3,200 complaints of non-payment of the minimum wage were received in 2007/08, an increase of 46 per cent on 2006/07 and 51 per cent on 2005/06. HMRC completed around 4,500 investigations into minimum wage underpayment in 2007/08, 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 number of enquiries completed in 2007/08 was an increase on 2006/07 but a decrease on 2005/06. The increased complexity and technical nature of many of the investigations may be one explanation for this.

7.15 The rate of non-compliance found during HMRC investigations in 2007/08 was 36 per cent. This increased on the previous two years, where it was 34 per cent in 2006/07 and 32 per cent in 2005/06. The total arrears identified have fluctuated between the years. In 2007/08 arrears totalled £3.9 million, an increase of 30 per cent on 2006/07. But average arrears per worker in 2007/08 were £202, a decrease of 6 per cent on 2006/07, when the average arrears per worker was £214. Relatively few large cases, in terms of arrears or workers, can have a major impact on these results.

Table 7.1 National Minimum Wage Enquiries and Complaints to HMRC and Enforcement Action Taken, 2005/06–2007/08

Source: HMRC, UK, 2005–2008.
Notes:

a. Enquiries completed are the number of cases closed after an inspection has been made.

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

7.16 Figure 7.1 shows the breakdown of complaints by sector over the last three years. The hospitality sector continues to be the sector that saw the largest number of complaints. This was to be the subject of a targeted enforcement campaign in 2007/08. This campaign was suspended, however, as a result of delays in the introduction of a new fair arrears and penalties regime, and will not now take place until 2009/10.

7.17 We have heard again this year that many workers who are paid below the minimum wage are afraid to make a complaint for fear of victimisation or dismissal. In its written evidence, Citizens Advice Northern Ireland stated that after nearly ten years there was still an unacceptable number of employers being reported to HMRC who are not complying with the legislation and that some workers were still reluctant to complain formally due to fear of harassment or dismissal. Usdaw called on the Commission to recommend that trade unions be allowed to take representative action to an employment tribunal on behalf of a group of workers who have been paid less than the minimum wage. The National Union of Journalists (NUJ) has called for better third party enforcement procedures to allow them to act without the individual needing to come forward. Equity felt it was desirable that trade unions should be able to bring cases on behalf of groups of workers as many of them with minimum wage problems were too scared to enforce their rights.

Figure 7.1 Complaints to the HMRC Minimum Wage Helpline, by Sector, UK, 2005/06–2007/08

Source: HMRC, UK, 2005–2008.

7.18 In its written evidence, Oxfam reported that their Migrant Workers Project had highlighted reluctance among vulnerable workers to report problems. In relation to the entertainment industry, Clive Hurst commented that non-compliance brought the minimum wage into disrepute and because it was on such a scale, support for it in the entertainment industry was eroded.

7.19 In our 2008 Report we noted that a number of trade unions supported calls for third parties to be informed of the outcome of a complaint. The Government has advised that, as part of the outcomes of the Vulnerable Workers Employment Forum (VWEF), HMRC will provide feedback to the TUC on minimum wage cases brought to its attention by unions. The feedback will aggregate the outcome for a number of cases to preserve the confidentiality of individual employers. We report further on the VWEF later in this chapter.

‘The vast majority of firms are compliant with the National Minimum Wage, but they face unfair competition from firms who operate with a competitive advantage because of their non-compliance.’

CBI evidence

7.20 In previous years we have received evidence advocating a policy of ‘naming and shaming’ employers who fail to pay the minimum wage. In our 2007 Report we stated that a ‘name and shame’ policy should be put in place to expose those employers who show wilful disregard for the minimum wage. The Home Office in 2008 ‘named and shamed’ a number of companies that employed illegal immigrants as part of their drive to crack down on people smuggling. In its written evidence this year, Unite called for a ‘name and shame’ policy to be adopted towards those employers found to be in breach of minimum wage legislation.

7.21 Widely publicising details of employers who do not comply with the law can be an effective deterrent. The employer concerned is unlikely to want to be ‘named and shamed’ for fear of damage to reputation and consequent loss of business. For workers, it highlights that the law is being enforced and may encourage more to come forward and report abuses. We recognise that with the introduction of the new penalty regime in April 2009, all employers found to be non-compliant with the minimum wage regime will be served with a penalty. We continue to believe, however, that ‘naming and shaming’ would act as a deterrent to non-compliance and recommend that a ‘name and shame’ policy should be put in place to expose those employers who show wilful disregard for the minimum wage.

Targeted Enforcement

7.22 In 2005 the Government announced a programme of targeted enforcement to tackle non-compliance in each of the low-paying sectors in turn. In 2005/06 the sector chosen was hairdressing, in 2006/07 it was childcare, in 2007/08 the hotel sector was targeted, and the wider hospitality sector was chosen for 2008/09. The choice of the hotel and hospitality sectors follows from previous recommendations we have made that low-paying sectors employing a large number of migrant workers should be targeted as a priority.

7.23 The Government suspended the 2008/09 campaign in the hospitality sector when it became clear that the Employment Act had become delayed and that the October 2008 start date for the new penalty regime was not possible. The delay in the start date for the new penalty regime meant that the first part of the campaign – targeted awareness raising – would contain guidance that would be outdated by the time the enforcement drive began. The Government has announced that targeted enforcement in the hospitality sector will now be undertaken in 2009/10.

7.24 We have noted in the past that targeted enforcement should be evaluated thoroughly to ensure it justifies the extra resource. In their evidence this year, the Government reported that the preliminary findings from their evaluation raised concerns about the effectiveness of the existing style of their targeted enforcement campaigns. Evidence suggested that the publicity part of the campaign was not reaching workers and that employers felt they were receiving general guidance of which they were already aware. The leaflets were welcomed, however, as being clear and accessible and the use of graphics was popular.

‘Failure to ensure the National Minimum Wage is enforced will mean that the increases argued for will fail to realise their potential impact on poverty.’

Oxfam evidence

7.25 One of the measures used by HMRC to assess the year-on-year level of non-compliance is the strike rate. This is the percentage of cases investigated in which non-compliance is found. The results of the preliminary evaluation of targeted enforcement paint a mixed picture with regard to the strike rates for each of the three campaigns. In all cases, in the year that the targeted enforcement took place, there was a drop in the average strike rate. This would indicate that the first part of the campaign, awareness raising, was successful. In the years following the first two campaigns, however, the strike rate rose to previous levels, or in the case of hairdressing, rose to its highest level so far.

7.26 It is not clear from the Government’s preliminary findings how effective targeted enforcement is. The rationale for implementing a targeted enforcement campaign remains valid and while the preliminary evaluation into this activity paints a mixed picture, we believe it is important that the Government undertakes the targeted enforcement campaign in the hospitality sector as soon as is practicable in 2009/10. We look forward to receiving details of the final outcome of the evaluation of this activity.

Resourcing Enforcement Activities

7.27 In December 2006 the Chancellor announced that funding for monitoring and enforcement of the National Minimum Wage would be increased by 50 per cent, an additional £2.9 million, in each of the next four years. We have welcomed this announcement as a positive step forward.

7.28 BERR has developed a coherent enforcement strategy to make best use of this additional funding. An additional £1.6 million has enabled HMRC to recruit 20 more staff to strengthen enforcement. Almost all of these staff are now in post. With additional funding, BERR’s publicity and awareness budget for 2007/08 was £1.2 million and this enabled it to carry out a co-ordinated campaign on raising awareness. Some of the additional funding has also been used to undertake an evaluation of the targeted enforcement campaign.

7.29 In their evidence this year, the Public and Commercial Services Union (PCS) stated that funding had not increased adequately this year to enable better policing of the minimum wage. It wanted to see additional funding allocated to enforcement activities to enable compliance officers to spend more time dealing with rogue employers who either do not pay the minimum wage or victimise workers who have sought to exercise their rights. UNISON called for the enforcement budget to be increased to allow for more proactive and targeted enforcement, especially in those sectors where migrant workers predominate. We note that there has already been a substantial increase in the resources for enforcement activities and this will continue until 2011. We will continue to monitor how this extra resource is being used to ensure that it is going into areas where it is most effective.

Employment Act 2008

7.30 There are a number of changes to the National Minimum Wage, particularly in relation to enforcement, as a result of The Employment Act 2008 coming into force. This was originally expected to happen in October 2008 but, because of delays, the Act came into force in April 2009. The Act seeks to improve the UK’s current employment law framework in line with the Government‘s aim of increasing both economic prosperity and social justice.

7.31 We will report on specific provisions in the Act elsewhere in this chapter and, where appropriate, it has also been covered in other chapters of this report. The main provisions in relation to enforcement activity are:

• penalties for employers who have not paid the minimum wage and additional powers for National Minimum Wage enforcement officers and employment agency inspectors to enable them to deal more effectively with serious cases of non-compliance;
• a new method of calculating minimum wage arrears to take account of the time that has elapsed since the underpayment took place;
• increased penalties for offences against the Employment Agencies Act 1973 and improved investigative powers for the Employment Agency Standards Inspectorate; and
• offences under the National Minimum Wage Act will be able to be heard in a Magistrates’ Court or Crown Court.

‘A County Down club employed door staff who complained that their wages were below the National Minimum Wage. HMRC identified 6 staff who were paid less than the National Minimum Wage and entitled to arrears of £15,670.’

Citizens Advice Northern Ireland evidence

7.32 We welcome the introduction of these provisions, some of which are in response to previous recommendations we have made. We are disappointed over the delay of their introduction, however, particularly as this has had a knock-on effect on targeted enforcement activities. We will monitor closely the impact of these new provisions.

Penalties and Fair Arrears

7.33 Until the first prosecution under the National Minimum Wage Act in 2007, HMRC’s compliance officers relied on the use of civil powers to enforce the minimum wage. These powers included the issuing of Enforcement and Penalty Notices on employers. These notices have been issued only on limited occasions. In 2007/08, 1,650 employers were found to be non-compliant, but only 59 Enforcement Notices and 25 Penalty Notices were issued. In our 2005 and 2007 Reports we said a worker paid below the minimum wage could suffer financial hardship even if arrears were eventually paid, since the worker would not receive any recompense to reflect the late payment. We recommended that this situation should be rectified.

7.34 Following a public consultation in 2007, to which we responded, the Government announced that it would be introducing a system of ‘fair arrears and penalties’ as part of the Employment Act. Delays in the passage of this Act mean that the new provision only came into force in April 2009. The fair arrears clause in the Act provides that arrears should be repaid at the current minimum wage rate when this is higher than the rate that was in force at the time of the underpayment. The Act allows for this to be applied retrospectively, which means that where arrears of the minimum wage are outstanding when the Act came into force, all entitlement to repayments are calculated to reimburse underpayment of pay in accordance with the new legislation. The penalty clause in the Act is a change of direction: the basis for issuing a penalty will move from non-compliance with an Enforcement Notice to non-compliance with the requirement to pay the minimum wage. The penalty will be set at half of the arrears, subject to a minimum of £100 and a maximum of £5,000. If employers pay the full arrears quickly, they will be eligible for a reduction in the penalty by half.

7.35 The Government advised that the aim of these new provisions is to provide for a penalty that is proportionate to the level of non-compliance and that will also provide an incentive for employers to repay arrears to workers quickly. It also believes the new regime will make it clear that underpayment is unacceptable, and it will be simpler than the current penalty regime and thus act as a better deterrent. A number of stakeholders who have responded to the consultation and those we have spoken to have expressed support for the new regime.

7.36 We fully support the introduction of these new provisions and recognise that they represent perhaps the biggest change to the enforcement regime since the introduction of the minimum wage. We believe a strong deterrent is necessary as there are still too many employers who are not paying the minimum wage. The imposition of a penalty on every employer who does not pay the minimum wage should provide such a deterrent. In addition, there is absolutely no reason why workers who have not been paid the minimum wage should lose out financially. Fair arrears should adequately compensate these workers. As noted above, the provisions only came into force in April 2009, so we are unable this year to comment on their impact. There has been widespread support for the new provisions and we will monitor with interest their application.

Criminal Prosecutions

7.37 The National Minimum Wage Act 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.

7.38 In 2006 the Department for Trade and Industry (DTI) agreed a policy on National Minimum Wage enforcement and prosecutions with HMRC. Additional resources were allocated so that appropriate cases could be investigated with a view to prosecution. In our 2008 Report, we noted that two successful prosecutions were completed in 2007 and that more were being taken forward. We welcomed the progress that had been made but again recorded our disappointment that only a handful of prosecutions were planned each year.

‘The black market will grow during a recession reflecting a wage level that people are prepared to work at which may be below the minimum wage.’

UCG member, cleaning services, evidence

7.39 In its evidence this year, the Government advised that in the period April 2007–February 2008, 38 cases were referred to HMRC’s Criminal Investigation Team for consideration of prosecution. It stated that taking a case through to prosecution is a time-consuming process and that a range of factors need to be taken into account before deciding which cases should be prosecuted. This year there have been a further three successful prosecutions bringing the total number since 2006 to five. In their evidence to us this year, the National Council for Work Experience (NCWE) made a point that no companies have been prosecuted for failing to pay students when they should have.

7.40 Under existing legislation, prosecutions can only take place in a Magistrates’ Court where the maximum fine is £5,000 per offence. In April 2009, changes came into effect through the Employment Act that mean cases can either be heard in the Magistrates’ Court or the Crown Court. If heard in a Crown Court, upon conviction, a potentially unlimited fine could be imposed.

7.41 Although we note there have been three further successful prosecutions, we believe this falls significantly short of a number that is sufficient to act as a deterrent. We also note that of the five, only one was for neglecting or refusing to pay the minimum wage (whereas the others were for failing to produce records or obstructing officers). We still 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 and that the current level of prosecutions is not sufficiently forceful. The increase in the penalties so that an employer could face an unlimited fine upon successful prosecution is welcome, but there is no evidence that this new provision will actually lead to more prosecutions, which is what we would like to see. We recommend that the Government allocates sufficient resources to HMRC to increase significantly the number of errant employers prosecuted in a criminal court.

Informal Economy

7.42 We continue to be concerned about the extent to which current enforcement activities can tackle those in the informal economy who pay less than the minimum wage. This issue is important, particularly in relation to the exploitation of migrant workers. There is understood to be a small core of employers who deliberately do not comply with the minimum wage and, most likely, a range of other employment and tax requirements. Evidence previously presented to the Commission has highlighted this issue.

‘Some labour providers feel they have little choice but to join those evading tax or go out of business.’

Association of Labour Providers evidence

7.43 Reaching those in the informal sector is clearly difficult and it is a problem faced by other government enforcement teams. Enforcement is particularly difficult in cases where there is collusion between employers and workers. In their written evidence, the Association of Labour Providers (ALP) felt that HMRC did not have the tools to pursue people in the informal economy and that enforcement bodies tended to concentrate on easy targets, typically those operating in the formal economy with records to inspect. It called for the Commission to examine the interaction of the minimum wage and the informal economy. The Unquoted Companies Group (UCG) thought black market non-compliance was more of a problem during a recession and that legitimate businesses were being undermined by black markets.

7.44 In their written evidence, the Cleaning and Support Services Association (CSSA) reported that some cleaning contractors were becoming aware of gangmasters in the cleaning sector recruiting falsely self-employed staff. The gangmaster was then able to bid for work knowing that cleaners can be paid under the minimum wage because they are ‘self-employed’. The CSSA believes this sort of activity puts a sharp focus on the need to ensure that enforcement is targeted on the informal economy. The CBI reported that informal employment can also be attractive to some workers as they avoid the Pay As You Earn (PAYE) system and migration checks and can commit benefit fraud.

7.45 We understand that tackling those who operate in the informal economy requires extra effort and resource and results may not appear to justify the effort put in. This is true of tackling any activity in the informal economy. Actions planned to enable enforcement agencies to more readily share information and intelligence will, we believe, help make headway as those operating in the informal economy are unlikely to be complying with a range of employment and tax laws, not just the minimum wage. As we move further into an economic downturn, the lure of the informal economy will become greater for some employers, and as unemployment rises, for some workers. We recommend that the Government gives urgent consideration to measures that can be taken to effectively tackle employers in the informal economy.

Vulnerable Workers

7.46 In our 2008 Report we noted that the Government had set up the VWEF and two Vulnerable Worker Pilots in 2007. The VWEF was established to help ensure that all workers enjoyed their workplace rights in full, and to address enforcement issues. The pilots were established 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.

7.47 In August 2008 the Government published the final report and conclusions of the VWEF (BERR, 2008b). The key enforcement issues identified by the VWEF were that: there was a low awareness of rights and how to enforce them; vulnerable workers were reluctant to report problems or, in some cases, there was a lack of knowledge of how to do so; there was a confusing enforcement picture with different government agencies enforcing different rights; and the low profile of some of the enforcement bodies.

7.48 To address these issues the Government has detailed a number of actions it will take. These include: establishing a single enforcement helpline through which vulnerable workers will be able to report abuse and access information and advice; running a significant, sustained campaign with delivery partners to raise awareness of basic employment rights; taking action to tackle the legal barriers that prevent enforcement bodies sharing information; providing feedback to the TUC on minimum wage cases brought to its attention by unions; and establishing a Fair Employment Enforcement Board to ensure continued progress towards joint working.

7.49 The Vulnerable Worker Pilots were set up in 2007 and are expected to run for two years. One is based in London and focuses on the cleaning and building services sector and the other is based in Birmingham and focuses on the hospitality sector. In October 2008 the Government published an interim evaluation report (BERR, 2008c) on these pilots. The report advised that there had been some success in achieving the objectives of the pilots. But both pilots had experienced longer lead-in times than originally planned and consequently, less work had taken place with vulnerable workers and employers than had been expected.

‘Many workers with minimum wage problems are too scared to enforce their rights. They fear retribution from their employer.’

Equity evidence

7.50 In February 2007 the TUC established a Commission on Vulnerable Employment (CoVE) to look at the causes of and solutions to vulnerable employment. The Commission’s members came from business, academia, trade unions and civil society organisations and it published its report ‘Hard Work, Hidden lives’ in May 2008 (TUC CoVE, 2008). The report concluded that vulnerable workers are often exploited because the law was not strong enough to prevent mistreatment. This led to insecurity for workers who do not have contracts of employment, work through agencies, or have reduced rights because of their immigration status. Specific recommendations of the CoVE are picked up elsewhere in this chapter.

7.51 We welcome the actions that have been announced as a result of the VWEF and believe they will help those who are most at risk from exploitation. In addition, we are pleased to see that progress is being made with the Vulnerable Worker Pilots. We will monitor progress on the implementation of these actions over the coming year and we urge the Government to keep these high on its agenda.

Migrant Workers

7.52 In Chapter 4 we looked at the labour market position of migrant workers from European accession countries. Migrant workers have been identified as a group at particular risk of being paid less than the minimum wage, as well as at risk of losing out on other basic employment entitlements. We have continued to receive evidence about the problems faced by migrant workers, although less evidence this year than has been received in previous years. There could be a number of reasons less evidence has been received this year: the number of migrant workers coming to the UK is decreasing; a large number have now been here for a few years so will be more aware of their rights; and the actions taken by the Government to address issues faced by migrants has been successful. In addition, the Gangmasters Licensing Authority (GLA) has now been successfully operating for two years in areas which traditionally employ a large number of migrant workers.

‘A Polish worker is working 58 hours a week as a waitress and is paid £150. She has approached the bureau for help getting money due to her and is aware that she will probably lose her job.’

Citizens Advice Scotland evidence

7.53 Oxfam advised us that its Migrant Workers Project has highlighted a number of issues that are relevant to all workers but which affect migrant workers disproportionately. These include illegal deductions, such as travel or accommodation costs, which are set artificially high, and a reluctance among migrant workers to report problems. In their evidence this year, Unite called for clarification in the law that employers may be prosecuted for not paying the minimum wage whether the workers have legal contracts or not. Citizens Advice Northern Ireland reported that in 2007/08, 14 per cent of all the complaints received by its minimum wage helpline were in relation to migrant workers. This compared with 5 per cent in 2006/07. Citizens Advice Scotland said its evidence showed that migrant workers who were paid less than the minimum wage were at risk of dismissal if they tried to take action to receive what they are due. These workers may not be able to afford to lose their employment, which put them in a ‘Catch 22’ situation.

7.54 The Government has taken a number of actions to strengthen the enforcement regime and some of these are specifically aimed at migrant workers. One element of the 2007/08 communications campaign run by the Government was a migrant worker campaign, which targeted Polish, Lithuanian and Slovakian workers. The aim was to increase awareness of the minimum wage and increase awareness of the helpline. It took in elements from other campaigns, including outreach work in migrant communities, bilingual posters, press articles and online activity. Literature was made available in Polish, Lithuanian and Slovakian and online in a number of other ethnic languages. The Government has advised that it will repeat this communications campaign. It has also announced that it has recently strengthened the information and guidance available to migrant workers about their employment rights and responsibilities. A revised and updated bilingual ‘Know Your Rights’ leaflet produced in partnership with the Polish Government is now available and other languages (beginning with a leaflet for Romanian migrant workers) are in the pipeline.

7.55 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 Worker Registration Scheme. Between November 2004 and March 2008, 29 per cent of the employers investigated were found to be non-compliant, with arrears of £417,162 identified for 3,114 workers.

7.56 The Government has advised that following work on a Joint Workplace Enforcement Pilot (JWEP), which we reported on in our 2008 Report, the UK Border Agency (UKBA) has introduced new partnership arrangements with HMRC and other workplace enforcement agencies to improve collaborative working on enforcement. The JWEP had indicated there was strong anecdotal evidence that employers who were employing illegal immigrants may also be underpaying on tax and NICs, or exploiting vulnerable workers by paying less than the minimum wage. The collaborative measures in the new partnership arrangements will, among other things, promote effective intelligence sharing between government departments. We strongly welcome this initiative, as sharing information effectively will make the best use of finite resources. This will also be the case with the actions planned as a result of the VWEF.

7.57 We recognise that the Government has targeted, and is continuing to target this group and also that the GLA is having a positive impact. But, we still have concerns over the vulnerability of migrant workers. We will continue to monitor closely the impact of the minimum wage on this group and also the impact of specific actions planned to help them.

Agency Workers and the Employment Agency Standards Inspectorate

7.58 In Chapter 4 we reported on some of the issues around agency workers. In this section, we look again at agency workers but specifically in relation to enforcement.

7.59 In previous reports we have noted that, although most agencies complied fully with the minimum wage, evidence was received that related to the level of deductions made by some agencies. In the worst cases, deductions were used to bring down a worker’s take-home pay to very low levels. Research conducted in 2006 (French and Möhrke, 2006), albeit based on a small sample, reported that where the worker was employed through an agency, there was more likely to be evidence of abuse. We remained of the view that the problems arising were best tackled through effective enforcement. This year, in their evidence, UNISON reported that unscrupulous employers and employment agencies were continuing to take advantage of migrant workers.

7.60 One of the government bodies responsible for enforcement in relation to the agency sector is the Employment Agency Standards (EAS) Inspectorate. 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 EAS. In 2007/08, nearly 1,300 complaints were investigated and over 200 targeted inspections carried out, resulting in 518 corrective letters being sent to agencies. In 2007 two agencies were successfully prosecuted and five individuals were prohibited from being involved in the running of an agency on the grounds of unsuitability due to previous misconduct.

7.61 In September 2007 the Government announced that the number of EAS inspectors would be doubled from 12 to 24. We have been advised that these inspectors have now been recruited and are undergoing on-the-job training. When fully operational, the inspectorate will be able to investigate a greater proportion of agencies in sectors where there is perceived to be a higher risk of breaches of the legislation. In April 2008 amendments to the Regulations came into force that were intended to address key abuses affecting vulnerable workers. One of these amendments was the introduction of a seven-day cooling-off period, during which entertainment and modelling agencies could not take fees for including details of a work-seeker in a publication. We have received evidence this year of up-front fees being charged and the TUC have called for the law to be amended to ensure that the minimum wage rules are applied in full to casting agents and the rules rigorously enforced. The Government has advised that it has received representations regarding these fees and is monitoring the effectiveness of the seven-day cooling-off period and the new provisions that came into force in April 2008.

7.62 There remains concern over the treatment and exploitation of some agency workers. We recognise that some actions to strengthen enforcement announced by the Government, and reported on elsewhere in this chapter, will be of benefit to agency workers. In addition, the Government is monitoring the new provisions that came into force in 2008 and there are provisions in the Employment Act that increase the penalties for offences against the Act and also improve EAS inspectors’ investigative powers. Time will be needed to see what comes out of the Government’s monitoring and the effects of the new measures in the Employment Act.

‘Gangmasters are diversifying from areas covered by the GLA to other sectors bringing their unfair pay practices with them.’

PCS evidence

Gangmasters Licensing Authority

7.63 The GLA is a government body that 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 packing 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 also became 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.

7.64 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. Revised and updated standards came into force in April 2009. 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.

7.65 In our 2008 Report we noted that the GLA had been operating for a relatively short period but, according to the evidence we had gathered, it was already held in high regard and was seen to be making a difference. Research by Balch, Brindley, Geddes and Scott (2009) on behalf of the GLA found that 69 per cent of labour providers felt the GLA was doing a good job, 62 per cent thought GLA inspections were vigorous or very thorough, and just under 75 per cent felt the GLA scheme should be extended to other sectors. Unite was concerned that the effectiveness of the GLA was forcing unlicensed gangmasters into different industries from the agriculture and farming sectors. It called for the GLA’s remit to be extended into hospitality, social care, and the betting and gaming sectors. The CoVE recognised that the GLA had made an impressive start. It noted that the GLA had demonstrated that it can enforce standards effectively in its sector and it recommended in its report (May 2008) that the Government should be prepared to extend the GLA licensing regime to cover sectors characterised by vulnerable employment. The CoVE reported that agencies that enforce specific employment rights employ committed staff but are under-resourced, do not have sufficient powers, and do not work together.

7.66 Since it began operations, the GLA has licensed around 1,200 labour providers. It has revoked 85 licences, 8 with immediate effect, and 1 person has been prosecuted for operating without a licence. The GLA has reported that more prosecutions are forthcoming and that it is increasing its activities with an 18-month programme of unannounced visits.

7.67 The GLA has been in existence for a relatively short time, yet its impact is being felt, particularly as it is reported that gangmasters are now moving into sectors not policed by the GLA. We have already reported on the moves being made to help enforcement agencies share information and intelligence, which will include the GLA. In addition to this, given their impact, it may be that other agencies can learn and improve their own performance by examining the working methods and practices of the GLA. We would like to see agencies, where appropriate, assess their working methods and practices against that of the GLA.

Employment Tribunals

7.68 The Employment Tribunal system provides an important means for workers to pursue claims for payment of the minimum wage. Previously, stakeholders have complained that the tribunal does not have the power to enforce an award and so the worker must seek payment through the civil court system. There has been no data available to show the extent of non-payment of tribunal awards in respect of the minimum wage, and we have been concerned that those employers who show no regard to awards made are tackled robustly.

7.69 In their evidence Usdaw and Unite both wanted trade unions to be allowed to take up representative and group cases regarding underpayment to Employment Tribunals. In addition, Usdaw and the TUC believed further enforcement action was necessary to ensure employers pay tribunal awards more quickly. Equity believes that enforcement would be enhanced if the barrier to cases being brought only by individuals was removed. PCS commented on changes going through in the Employment Bill, specifically the imposition of penalties against non-compliant employers. It believed this is likely to lead to a large increase in the number of appeals to employment tribunals and, consequently, an increase in the workload for investigators. We will monitor this situation to assess whether an increase in the number of cases going to an Employment Tribunal is deflecting investigators from their other enforcement duties.

7.70 Figures from the Employment Tribunal Service (ETS, 2008) show that, in 2007/08, 511 cases relating to the National Minimum Wage were completed. Of these, 22 per cent were settled through ACAS conciliation and 19 per cent were successful at Tribunal. The remainder were not successful for a number of reasons (e.g. withdrawn, dismissed, etc). In 2008 Citizens Advice Bureau evidence briefing (CAB, 2008) on the enforcement of Employment Tribunal awards showed that around one in ten of all monetary awards made needed to be enforced. The Tribunal Service has also undertaken research into the non-payment of tribunal awards and the results are due to be published in spring 2009.

7.71 The Government has advised that changes that will come into force in April 2009 through the Tribunals, Courts and Enforcement Act 2007 will make it easier for individuals to enforce the payment of Tribunal awards. In addition, it is producing a leaflet to inform claimants of the various forms of enforcement available to them and it is working on setting up a customer services general enquiries line to aid claimants in pursuit of enforcing their awards. The leaflet and customer services general enquiries line are designed to bridge the gap between the court-led enforcement process and tribunal-led ruling. The Government is also in discussion with stakeholders about further measures to ease the costs and burdens of the enforcement process for unpaid Employment Tribunal awards.

7.72 We are encouraged that research has been undertaken to look at the extent of non-payment of Tribunal awards and that steps are being taken to reduce the costs and make the enforcement process less burdensome. We urge the Government to continue to look for steps to simplify and speed up the process to show those who have not been paid the minimum wage that the Employment Tribunal system is an effective mechanism for claiming their entitlement.

Conclusion

7.73 In this chapter we have highlighted a number of positive developments that have taken place, or have recently come into force, in relation to awareness and enforcement of the minimum wage. A number of changes, introduced in April 2009, are arguably the most significant shift in the enforcement regime since the minimum wage was introduced ten years ago. These changes have been welcomed by stakeholders and we will monitor closely how they are implemented over the next year.

7.74 There remain, however, a large number of workers who are not receiving their full entitlement under the National Minimum Wage Act. Although the developments taking place are a step in the right direction, we have entered a period of economic uncertainty and many workers in the low-paying sectors will become more vulnerable to exploitation as employers look to reduce their costs. There is, therefore, no room for complacency from the enforcement agencies.

7.75 We remain concerned about enforcement, and have made recommendations to the Government on the number of prosecutions, the informal economy, and a ‘naming and shaming’ policy. We believe that further action can be taken in these areas that will not be directly affected by other initiatives. Overall, we are pleased with the steps being taken to enforce the minimum wage but believe there is still more that can be done to strengthen the regime.

7.76 In the next chapter, we conclude our report with our analysis of the economic climate and stakeholder views on the minimum wage rates for 2009. We close with our recommendations on the adult minimum wage, Youth Development Rate, 16–17 Year Old Rate, and the level of the accommodation offset.