Introduction

4.1 In this year’s terms of reference the Government again asked us to monitor the effect of the National Minimum Wage on different groups of workers, including on different age groups, ethnic minorities, women, disabled people and migrant workers. These groups, plus those who are unqualified, have poorer employment prospects and tend to include a large proportion of workers on low pay. They are, therefore, more likely to be affected by the minimum wage than other groups and we might also expect them to be particularly affected by the recession. This chapter begins by discussing each of these key groups and explaining the impact of the recession and the minimum wage on their earnings and their positions in the labour market.

4.2 In addition, there are other groups of workers who, by the nature of their work and how they are paid, face issues around the application of the minimum wage that are of particular concern to us. These groups are affected for a range of reasons, such as their type of employment (e.g. agency workers); location (e.g. homeworkers/Fair Piece Rates and seafarers); or questions around whether employees are within the scope of the National Minimum Wage Act (e.g. voluntary workers and people on unpaid work experience). Other issues about the coverage and scope of the Act relate to pay, so we are interested in groups of workers affected by the accommodation offset; the treatment of tips; and the use of tax-free travel and subsistence payments.

4.3 We consider each of these groups in turn and explain the reasons for our interest. We report on evidence received from stakeholders and other sources on the impact of the minimum wage, and provide an update on any recent developments in government policy.

Overall Position of Particular Groups of Workers

4.4 In looking at particular groups of workers, high quality earnings data are available by gender and age from the Annual Survey of Hours and Earnings (ASHE). Data on earnings for ethnic minorities, disabled people, migrant workers, and people with no qualifications are available from the Labour Force Survey (LFS); but this is self-reported and a smaller sample and, therefore, subject to greater errors. The reliability of data available to support our analysis varies accordingly.

1. Figure 4.1 illustrates that workers in our groups were more likely to be covered by the October 2009 National Minimum Wage upratings than workers in general or men (used here as a comparison group). For most groups, coverage based on the LFS was between 6.7 and 8.7 per cent, while for unqualified people it was around 18 per cent, over three times as high as for the working age population. It is worth noting that young people have been analysed here with respect to their lower minimum wage rates, which is why they do not show as having the highest coverage. When compared with the adult rate, around 72 per cent and 29 per cent of 16–17 and 18–21 year olds respectively were covered. As our groups are more likely to have been affected by the 3.8 per cent increase in the minimum wage, they could potentially be more vulnerable during the recession, especially those with no qualifications.

Figure 4.1: Proportion of Workers Covered by the October 2009 National Minimum Wage Upratings, UK, 2009

Source: LPC estimates based on ASHE 2007 methodology, low-pay weights, UK, April 2009 and LFS Microdata, income weights, UK, Q2 2009.

Note: Coverage defined as adults (aged 22 and over) earning less than £5.76, youths (aged 18–21) earning less than £4.80, and 16–17 year olds earning less than £3.54 in April 2009; working age, unless stated otherwise.

4.6 In the third quarter of 2009, all of our groups had lower employment rates than the working age population and men, as shown in Table 4.1. They also had higher inactivity rates and, apart from women and those aged above State Pension Age, higher unemployment rates. Table 4.1 shows that since the start of the recession, all groups of workers have seen some deterioration in their labour market prospects. But only men, young people and those with no qualifications have been affected more than the working age population as a whole.

Table 4.1: Change in Employment, Unemployment and Inactivity Rates Throughout the Recession for Various Groups, UK, 2008–2009

Per cent, change in percentage points	Employment rate		Unemployment rate		Inactivity rate
Group of worker	2009 Q3	Change on 2008 Q2	2009 Q3	Change on 2008 Q2	2009 Q3	Change on 2008 Q2
Working age	73.2	-1.6	7.5	2.1	20.9	-0.1
Men	76.6	-2.3	8.3	2.6	16.4	0.1
Women	69.4	-0.8	6.5	1.4	25.8	-0.2
Young people 16–17	28.9	-5.2	30.7	4.8	58.3	4.4
Young people 18–21	53.3	-4.8	19.9	4.9	33.4	1.8
Older workers 60/65+	11.9	0.5	2.4	0.8	87.8	-0.6
Disabled people	40.0	-0.3	13.7	1.9	53.6	-0.7
Ethnic minorities	60.2	-0.8	12.6	2.0	31.1	-0.6
Migrant workers	67.9	-1.2	n/a	n/a	n/a	n/a
Unqualified workers	45.4	-2.3	15.8	4.0	46.1	0.2

Source: LPC estimates based on LFS Microdata, quarterly, four-quarter moving average, UK, Q3 2007–Q3 2009.

Note: Working age, unless stated otherwise.

4.7 The following sections look in more detail at the current labour market position of our vulnerable groups of workers and to what extent they have been affected by the recession. Young people are covered separately in Chapter 5.

Women

4.8 Despite women’s increased participation in the labour market over recent years, they are still more likely than men to be low-paid and less likely to be in employment. First we look at the possible reasons for women to be in low-paying jobs, we go on to assess the difference in men and women’s earnings, and finally we investigate the impact of the recession on their earnings and labour market prospects.

4.9 Women remain far more likely to work part-time than men. According to LFS, two-fifths of women worked part-time in the third quarter of 2009, compared with a tenth of men, making up over three-quarters of all part-time employees. As around two-thirds of jobs paid at the minimum wage are part-time (based on ASHE), this leads to a higher chance of women being low-paid compared with men.

4.10 Similarly, women are more likely to work in low-paying sectors than men. LFS data show that over half of employees in low-paying industries and two-thirds of employees in low-paying occupations are female. The gender split is less pronounced for industries as they include higher-paying managerial and supervisory roles, which are more likely to be held by men. Childcare and hairdressing occupations are overwhelmingly female (over 90 per cent) and the two largest low-paying occupations, hospitality and retail, also contain a greater proportion of women (59 and 66 per cent respectively).

Table 4.2: Hourly Gender Pay Gap of Full-time Workers Aged 18 and Over, UK, 1997–2009

Year	£ per hour						Per cent
	Men			Women			Pay gap
	Lowest decile	Median	Upper decile	Lowest decile	Median	Upper decile	Lowest decile	Median	Upper decile
1997	4.44	8.19	17.24	3.87	6.87	13.83	12.9	16.1	19.7
1998	4.62	8.54	18.10	4.08	7.14	14.44	11.6	16.4	20.2
1999	4.85	8.85	18.89	4.29	7.46	15.22	11.5	15.7	19.4
2000	4.94	8.87	19.45	4.41	7.65	15.67	10.8	13.8	19.4
2001	5.15	9.32	20.84	4.65	8.02	16.54	9.7	14.0	20.6
2002	5.40	9.72	21.94	4.88	8.41	17.43	9.6	13.5	20.6
2003	5.63	10.03	22.53	5.11	8.75	18.00	9.1	12.7	20.1
2004	5.81	10.48	23.44	5.36	9.21	18.94	7.6	12.1	19.2
2004	5.76	10.36	23.02	5.33	9.10	18.75	7.5	12.2	18.6
2005	6.00	10.80	24.24	5.60	9.60	19.76	6.7	11.1	18.5
2006	6.24	11.22	25.38	5.84	10.00	20.28	6.4	10.9	20.1
2006	6.20	11.14	25.25	5.75	9.86	20.12	7.3	11.5	20.3
2007	6.50	11.61	26.25	6.08	10.34	20.87	6.5	11.0	20.5
2008	6.73	12.16	27.27	6.25	10.74	21.50	7.1	11.6	21.2
2009	7.00	12.65	28.19	6.54	11.24	22.53	6.6	11.1	20.1

Source: LPC estimates based on ASHE without supplementary information, April 1997–2004, ASHE with supplementary information, April 2004–2006 and ASHE 2007 methodology, April 2006–2009, standard weights, UK.

Note: Direct comparisons before and after 2004 and those before and after 2006, should be made with care due to changes in the data series.

4.11 The extent of the difference in pay between men and women can be assessed using the gender pay gap (i.e. the proportional difference between men and women’s earnings). We tend to focus on the median gender pay gap for full-time workers, as it more closely compares like-with-like and is less affected by extreme earnings than the mean. Table 4.2 shows that the median gender pay gap has gradually closed from above 16 per cent before the introduction of the minimum wage to 11.1 per cent in April 2009. There were small increases in some years, which tended to be when the minimum wage increased by less than the growth in average earnings. The gender pay gap at the lowest decile is smaller and, as expected, appears more sensitive to the level of the uprating.

4.12 In its response to our consultation this year, Unite acknowledged the reduction in the gender pay gap since the minimum wage’s introduction. Nevertheless, it claimed that the UK was years away from a position of parity between the genders and, therefore, considered the minimum wage a vital tool for reducing the gender pay gap.

4.13 If we calculate the gender pay gap by age, Figure 4.2 shows that it varies considerably. In 2009 the gender pay gap for women only existed from age 30. Between ages 18 and 29 the gap was non-existent, but it was negative for 16–17 year olds (men had lower earnings than women in this age group). For all age groups, the pay of women has improved relative to men since 1998, although the pay gap for those aged over 18 was similar in 2008 and 2009. The gap became more negative for 16–17 year olds in 2009, as men’s average earnings growth was lower than women’s.

Figure 4.2: Hourly Median Gender Pay Gap of Full-time Workers, by Age, UK, 1998 and 2008–2009

Source: LPC estimates based on ASHE without supplementary information, April 1998, and ASHE 2007 methodology, April 2008–2009, low-pay weights, UK.

Note: Direct comparisons with 1998 should be made with care due to changes in the data series.

4.14 Overall, there is evidence that the positive impact of the minimum wage has gone some way to outweighing the negative effect of the recession on women’s earnings. Further, it appears that men’s earnings have been particularly affected by the recession and that 16–17 year olds have been hit the hardest.

4.15 This pattern also plays out in the labour market where men have seen a much greater deterioration throughout the recession. Table 4.1 showed that, despite a fall in the employment rate (down 0.8 percentage points) and a rise in the unemployment rate (up 1.4 percentage points) for women, these changes have been smaller than for men. Further, LFS data indicate that around 60 to 70 per cent of redundancies in each month of the recession have been men. In fact, women have continued to increase their participation in the labour market throughout the recession. In conclusion, women have been adversely affected by the recession, but not to the same extent as men.

Older Workers

4.16 Age is arguably the most important factor with regard to the minimum wage. It is the only factor by which the minimum wage varies. Young people are covered in detail in Chapter 5 and here we focus on the earnings and labour market prospects of older workers at or above State Pension Age (currently age 60 for women and age 65 for men).

4.17 First, according to ASHE, the difference in median pay between older and other workers was around 22 per cent. In April 2009, median hourly earnings for those aged over State Pension Age were £8.43, compared with £10.82 for those aged 18 and above. Further, Figure 4.1 showed that workers aged over State Pension Age were more likely than the working age population to be covered by the October 2009 minimum wage upratings. Coverage varies across age bands and Figure 4.3 shows that it is considerably higher for these older workers (6.9 per cent in 2009) than for other adults (4.4 per cent or lower in 2009). Nevertheless, the coverage for older workers did not increase between 2008 and 2009. In fact, the only age group to have seen an increase in coverage was 18–21 year olds, again suggesting that young people may have been more affected by the recession.

Figure 4.3: Proportion of Workers Covered by the October 2009 National Minimum Wage Upratings, by Age, UK, 2008–2009

Source: LPC estimates based on ASHE 2007 methodology, low-pay weights, UK, April 2008–2009.

Note: Coverage defined as adults (aged 22 and over) earning less than £5.76, youths (aged 18–21) earning less than £4.80, and 16–17 year olds earning less than £3.54 in April 2009; working age, unless stated otherwise.

4.18 Despite older workers having the lowest employment rate because of the large numbers that are retired, the rate has been increasing since the middle of 2001, with a corresponding decrease in their inactivity rate. LFS data show that these trends have continued throughout the recession. In fact, Table 4.1 showed that older workers were the only group with an increase in their employment rate (up 0.5 percentage points) since the start of the recession. In conclusion, workers over State Pension Age remain vulnerable in terms of being low-paid. But in the recession their earnings position has not worsened and despite more older workers choosing to stay in work for longer, they have been managing to keep their current job or find an alternative.

Disabled People

4.19 The employment rate of disabled people was low at around 40 per cent (accounting for 2.1 million workers) in the third quarter of 2009. Nevertheless, since before the introduction of the National Minimum Wage they have been increasing their participation in the labour market. Disabled people remain more likely to be low-paid because of the type of roles they tend to occupy. A third work part-time, which is a higher proportion than workers without a disability (less than a quarter). They are also more likely to work in low-paying occupations. For example, 12 per cent of cleaners had a work-limiting disability in the third quarter of 2009, compared with 8 per cent of all workers.

4.20 In its evidence submitted this year, UNISON reiterated that disabled people have extra living costs, such as heating, transport, housing and prescriptions. It saw this as another reason for maintaining a decent level of the minimum wage.

4.21 To assess the difference in earnings between people with and without disabilities, we can use the LFS to estimate the pay gap. In the National Minimum Wage year 2008/09, disabled people earned 8.1 per cent less than others at the median. Comparing data at the start of the recession (second quarter of 2008) with a year later, there was no change in the median pay gap. The pay gap at the lowest decile is minimal, which could be a result of the minimum wage. Further evidence of the difference in pay is shown in Figure 4.1, with 7.1 per cent of disabled workers estimated to be covered by the October 2009 National Minimum Wage upratings. This was higher than coverage for people without disabilities (5.0 per cent).

4.22 Although traditionally it might be expected for disabled workers to fare particularly poorly in the recession, there is evidence that this has not been the case. As already noted, disabled people have been increasing their participation in the labour market over recent years, and Table 4.1 showed that this trend has continued throughout the recession. According to the Department for Work and Pensions (DWP), between May 2008 and May 2009, the number of incapacity benefit claimants fell by 260,000 to 2.33 million. Further, despite a decrease in their employment rate and an increase in their unemployment rate since the recession began, these changes were small. In conclusion, although disabled people have experienced some negative effects of the recession, generally they have been coping well compared with other groups and their earnings do not seem to have been adversely affected.

Ethnic Minorities

4.23 Ethnic minorities have historically been more vulnerable in the labour market than white workers, yet they too have been increasing their participation over recent years. According to LFS, in the third quarter of 2009 there were 2.6 million ethnic minority workers (around 10 per cent of all workers). Their inactivity rate was relatively high at 31 per cent, compared with 21 per cent for the working age population, with the rate for ethnic minority women even higher at 41 per cent.

4.24 Compared with white workers, ethnic minorities are more likely to work in part-time jobs and in low-paying occupations (25 per cent and 30 per cent respectively in the third quarter of 2009), although this varies by ethnic group. Black people make up a relatively high proportion of security guards and social carers, whereas Indians, Pakistanis and Bangladeshis make up a relatively high proportion of workers in occupations within the textile industry (all around 7 per cent compared with 2 per cent of all workers).

4.25 In its written evidence, the Scottish Government acknowledged the ‘ethnic penalty’ in employment, whereby people from minority ethnic communities were likely to earn less than their white counterparts. It concluded that the minimum wage would be of significant benefit in redressing these inequalities.

4.26 The median pay gap between ethnic minorities overall and white people was 6.4 per cent in the 2008/09 National Minimum Wage year based on LFS data. If we again look at the different ethnicities separately, Figure 4.4 shows that some pay gaps were much larger and average earnings were not always lower than those for white people. There was a negative pay gap at the median and lowest decile for Indians (-14.3 per cent and -2.5 per cent respectively), which meant that they earned more than white people on average. In the 2007/08 National Minimum Wage year there was little difference in pay between black and white people at the median, but in 2008/09 the gap was 6.6 per cent. Pakistanis and Bangladeshis had the largest pay gaps in 2008/09. The gaps were similar for both these ethnic groups at the lowest decile (around 5 per cent) and were 22.1 per cent and 27.5 per cent respectively at the median.

Figure 4.4: Hourly Pay Gap Between White and Ethnic Minority Workers, UK, 2008/09

Source: LPC estimates based on LFS Microdata, quarterly, not seasonally adjusted, UK, Q4 2008–Q3 2009.

4.27 These findings on earnings further support the evidence in Figure 4.1, which showed that coverage of the 2009 National Minimum Wage upratings was higher for ethnic minorities overall than for all workers, using LFS data. There was a similar pattern in coverage and changes to coverage through the recession by ethnic minority group. Indians were less likely to be in ‘minimum wage jobs’ than white people in 2008 and 2009. Black people had the lowest coverage in 2008, but in 2009 it was higher than for white people. Bangladeshis also experienced an increase in their coverage, and Pakistanis and Bangladeshis remain the ethnic groups most likely to be covered by the minimum wage in 2009 (15.6 per cent and 21.9 per cent respectively).

4.28 Overall, the recession has not affected the labour market prospects of ethnic minorities to the same extent as it has for white people. Table 4.1 showed that ethnic minorities experienced a small decrease in their employment rate and a small increase in their unemployment rate, but that their participation has continued to increase. The change in unemployment was similar for ethnic minority men and women, but a fall in the employment rate for men offset a small rise for women. Similarly, an increase in women’s participation offset a decrease for men, demonstrating again that men have been more affected by the recession than women.

4.29 As we have seen for earnings, some ethnic groups have been more affected in the labour market than others. Figure 4.5 shows that only black people saw a decrease in employment levels between the start of the recession and the third quarter of 2009 (down 4.5 per cent). Further, black and Indian people experienced the largest increases in unemployment levels, but only the increase for Indians was larger than that for white people. Pakistanis and Bangladeshis experienced the smallest unemployment increase. They increased their employment level (by 8.1 per cent) and their participation level accordingly.

Figure 4.5: Change in Employment, Unemployment and Inactivity Levels Throughout the Recession, by Ethnic Group, UK, 2008–2009

Source: LPC estimates based on LFS Microdata, quarterly, four-quarter moving average, UK, Q3 2007–Q3 2009.

Note: Working age.

4.30 In conclusion, the effect of the recession on different ethnic groups has been mixed. Black people used to receive higher earnings on average, but they have been most affected by the recession. Bangladeshis and Pakistanis are most likely to be covered by the minimum wage, yet their labour market prospects have not been as severely affected. Further, ethnic minority men have been more affected in the labour market than ethnic minority women.

Migrant Workers

4.31 Migrant workers have again been identified throughout our consultation as a group who are particularly susceptible to exploitation. Many come to the UK with high skill levels and good qualifications but have to take lower-paid jobs, with the language barrier causing problems for some. In its written evidence, the United Kingdom Home Care Association (UKHCA) in particular noted the vulnerability of migrant workers. It said that there was research indicating that there were issues around delivery of care due to language and cultural barriers.

4.32 These problems particularly affect those from the accession (A8) countries (the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia), who have been arriving in increased numbers since 2004. We first look at the latest statistics on the numbers of migrants in the UK, before turning to examine their earnings and labour market position and to what degree they have been affected by the recession.

4.33 Since our last report, the Office for National Statistics (ONS) has completed its first year of the cross-government Migration Statistics Improvement Work Programme. As well as implementing methodological improvements, it has combined statistics from the ONS, Home Office and DWP into one publication. This has been useful for comparison purposes and for providing a fuller picture. Table 4.3 shows that total inflows have slowed on most measures, but that net migration was still positive in 2008. The largest reductions in inflows in 2008 were for those born in the A8 countries (falls of around a quarter). The latest available statistics show that these trends have continued into the first half of 2009.

Table 4.3: Migration Statistics, UK, 2002–2009

Thousands	ONSa	ONSa	DWPb	DWPb	WRSc
	Net	Inflow	Inflow	Inflow	Inflow
	All countries	All countries	All countries	A8 countries	A8 countries
2002	81	386	311	15	–
2003	113	427	362	24	–
2004	208	518	413	79	135
2005	168	496	619	244	212
2006	160	529	633	283	235
2007	209	527	797	368	218
2008	129	538	670	272	167
2009 (first 6 months)	–	–	326	105	54

Notes:

a. ONS Long Term International Migration statistics measure the number of people that migrated to/from the UK for at least 12 months.

b. DWP National Insurance Number statistics are based on the number of registrations; they include self-employed, whereas Worker Registration Scheme (WRS) figures do not.

c. WRS figures are for applicants, rather than the number of applications; 2004 is May to December.

4.34 Traditionally, non UK-born workers received higher earnings and worked in similar sectors of the economy as UK-born workers. But this changed as workers from the A8 countries began to migrate to the UK. In the second quarter of 2009, LFS data showed around a third of workers born in the A8 countries worked in elementary occupations[1], compared with around a tenth of UK-born workers (Clancy, 2009). As a result, median earnings for those born outside the UK have fallen below the average for those born here. The estimated pay gap between non UK-born and UK-born workers for the 2008/09 National Minimum Wage year was 3.6 per cent, based on the LFS.

4.35 Further, Figure 4.1 showed that around 9 per cent of non UK-born workers were covered by the October 2009 National Minimum Wage upratings (LFS data), which was higher than for all workers. This was similar to the estimated coverage for the 2008 upratings, so although there is evidence that migrants are more vulnerable in terms of lower earnings, their earnings do not appear to have been significantly affected by the recession.

4.36 Table 4.1 showed that migrant workers overall experienced a 1.2 percentage point fall in their employment rate, which was a smaller fall than for all workers. Behind this statistic lies significant variation by country of birth, which is illustrated in Figure 4.6. First, despite the fall in the rate since the start of the recession, the employment level for those born outside the UK increased by 3.4 per cent. This pattern is similar for A8 migrants, suggesting that more people have moved to the UK since the start of the recession, but there is a higher chance of being unable to find a job. People born in India, Pakistan and Bangladesh fared better than other groups, with similar increases to employment rates and levels. Those born in Africa fared worse, with the largest reductions in employment rates.

Figure 4.6: Change in Employment Rate and Level Throughout the Recession, by Country of Birth, UK, 2008–2009

Source: LPC estimates based on ONS data, quarterly, four-quarter moving average, UK, Q3 2007–Q3 2009.

Notes:

a. Working age.

b. The EU14 are Austria, Belgium, Denmark, Finland, France, Germany, Greece, Holland, Italy, Luxembourg, Portugal, Republic of Ireland, Spain (including the Canary Islands), and Sweden.

c. Change between Q2 2008 and Q3 2009.

4.37 In conclusion, migrant workers overall have not fared worse in the recession than those born in the UK. But people from different countries of birth have had mixed experiences of the recession, with those from Asia doing relatively better than others.

Unqualified Workers

4.38 Workers with no qualifications tend to fare worse than others in the labour market as employers seek experience and evidence of educational attainment. In its written evidence, the CBI said that employers demanded workers with good literacy, numeracy, IT and general employability skills, and that in a recession these would be in particular demand. The unqualified are also traditionally more affected by recessions as firms protect their core workers who are qualified and higher-skilled, and dispense with temporary and less-qualified workers. We look to see whether the latest evidence supports these presumptions.

4.39 LFS data showed that there were 2.1 million people (8 per cent of the workforce) with no qualifications in employment in the third quarter of 2009. They were more likely to be low-paid because of their higher chance of working part-time (30 per cent) and within low-paying sectors (36 per cent). They made up at least 25 per cent of workers in the textile and cleaning occupations. Unqualified workers were also more likely to be aged over State Pension Age than workers in the whole economy, so there is some interaction between this group and older workers, whom we discussed earlier.

4.40 According to the LFS, the difference between earnings for people with and without qualifications is reasonably modest at the lowest decile (4.5 per cent), but the pay gap increases along the earnings distribution. At 32.6 per cent, the difference at the median is the largest of all our groups of workers in the 2008/09 National Minimum Wage year. Further, Figure 4.1 showed that unqualified workers are considerably more likely to be in ‘minimum wage jobs’ than any other group. Their minimum wage coverage was 18.6 per cent in 2009, which was an increase from 17.5 per cent in 2008. So, excluding young people, not only are they the lowest paid, they are most likely to be covered by the minimum wage upratings and this coverage has increased during the recession.

4.41 The labour market prospects for unqualified workers have been deteriorating over a number of years according to the LFS. Their employment rate began to decrease from around 2001, their unemployment rate began increasing from around 2005, and these trends have worsened throughout the recession. Table 4.1 showed that of all our groups, with the exception of young people, unqualified workers have experienced the largest fall in their employment rate since the start of the recession and account for nearly 60 per cent of the overall employment level decrease. They were also one of the few groups that experienced a rise in their inactivity rate. Overall, the only group to have been hit harder throughout the recession than unqualified workers was young people.

Agency Workers

4.42 Agency work offers important flexibility for both workers and employers. It can offer a short-term solution to staffing problems for employers while offering individuals the opportunity to gain skills and experience in different areas. Agency workers are fully entitled to the minimum wage but are not yet required to have the same pay and conditions offered to directly employed staff.

4.43 Our consultation revealed a number of issues concerning agency workers this year. As in previous years, some are covered in this section and others, relating to enforcement, are covered in Chapter 7.

4.44 According to the Recruitment and Employment Confederation (REC), in 2007/08 the recruitment industry placed 1.2 million people into temporary jobs every week. Data from LFS showed that in the third quarter of 2009 there were around 238,000 jobs classified as ‘agency temping’ compared with 234,000 for the same period in 2008 and 265,000 in 2007. Examining all types of temporary jobs, some of which would not involve the use of an agency, we found that there were just over 1.3 million temporary jobs in the third quarter of 2009, 13,000 more than in the same period for 2008 but 155,000 fewer than that period for 2007. We can see that the current use of agency workers is down on 2007 levels, but up on 2008 levels suggesting that firms reduced their reliance on agency workers in the second half of 2008 but that the market for these services is now improving. This is supported by REC (2010), which recorded the fifth consecutive month of growth for temporary placements.

4.45 According to ASHE, the proportion of workers in the labour recruitment sector paid at the minimum wage increased slightly from 10.0 per cent in 2008 to 10.7 per cent in 2009. The proportion paid at £6.00 per hour was similar, however a smaller proportion were paid at £6.50 per hour in 2009 (2.5 per cent compared with 2.9 per cent in 2008).

4.46 In our 2009 Report we noted that agreement had been reached in Europe on the Agency Workers Directive. This enables the Government to implement the Directive on the basis of an agreement between the CBI and the Trades Union Congress (TUC), which will allow for equal treatment to apply after a temporary worker has been in a given job for 12 weeks. The Government launched 2 consultations on the implementation of this Directive and recently announced that it will not be implemented until October 2011.

Entertainment Sector

4.47 Equity highlighted the problem of work being offered for no pay, giving aspiring performers an opportunity to work in the industry. Our Secretariat also met two actors who raised the issue of the complex nature of the law in relation to the entertainment industry and of roles in TV and film being advertised as unpaid when they were clearly work. They wanted it to be made illegal to advertise work for no pay. The actors, along with Equity, had passed details of adverts offering work for no pay to HM Revenue & Customs (HMRC) and felt that some sort of sector specific guidance for employers and agencies in the entertainment industry would be beneficial.

‘Many workers in the entertainment sector with minimum wage problems are scared to enforce their rights. They fear retribution from their employers.’

Equity evidence

4.48 During a visit to London we met a group of actors who told us of the problems those in the entertainment sector faced. These included: agencies taking their fees from a day’s pay, leaving the worker with less than the minimum wage, and offering no subsequent work to the actor; work being advertised for no pay (but sometimes with expenses); and the complex nature of the regulations in this sector. They told us that those in the industry were reluctant to report abuse for fear that they would subsequently find it difficult to obtain work.

4.49 In November 2009, an Employment Tribunal ruled that workers engaged on an expenses-only basis were entitled to payment at least in line with the National Minimum Wage. The case was brought by a department assistant against a film company and was supported by the Broadcasting Entertainment Cinematograph and Theatre Union (BECTU).

4.50 We have again heard this year about a number of problems faced by those working in the entertainment industry. We understand that the issues are not always as straightforward as they may appear and that two enforcement bodies, HMRC and the Employment Agencies Standards Inspectorate, have an involvement in this sector. While more may need to be done in relation to enforcement of existing regulations, we believe the production and publication of guidance specifically for the entertainment industry would go some way to highlighting the rights and obligations of employers, agencies and workers in the sector. We therefore recommend that the Government produces, in conjunction with interested parties, sector specific guidance on the National Minimum Wage for the entertainment sector. We will monitor the situation with regard to this group of workers carefully and, following publication of the sector specific guidance, review the effect of its publication.

Workers Provided with Accommodation

4.51 Accommodation is the only benefit-in-kind that can count towards the minimum wage. It provides a mechanism to enable employers to offset the cost of providing accommodation for workers against the minimum wage, up to a maximum daily limit. The level of the offset has risen, in percentage terms, broadly in line with the adult rate of the minimum wage.

4.52 The provision of accommodation is common in some low-paying sectors such as agriculture and hospitality. Offset arrangements provide protection to the worker and give some recognition of the value of the benefit, but are not intended to reflect the actual costs of provision to the employer or the commercial market value.

4.53 We undertook a detailed review of the offset for our 2006 Report, including considering whether there was a case for relaxing the offset rules. The conclusion of our review was that there remained concern whether workers (some of the most vulnerable) would have a genuine choice if accommodation was provided as an ‘option’, outside the contract of employment. We therefore recommended that the current provisions should continue to apply to all workers housed by their employers.

4.54 In subsequent reports, we continued to note the concerns of stakeholders over the operation of the existing offset arrangements and the issues it caused. In particular, we noted that employers were no longer providing accommodation because they claimed it was not economically viable to do so. This left workers having to obtain accommodation on the open market, where they faced exploitation from unscrupulous landlords. In our 2009 Report we said we would invite stakeholders to submit further and more detailed evidence as part of our review for this report.

4.55 In its evidence this year the National Farmers’ Union (NFU) stated that agriculture had been severely affected by the shortage of rural accommodation for employees. As a consequence, many employers were obliged to provide accommodation to a large number of workers, not because it was necessary to have them on site, but because otherwise they would not be able to recruit sufficient labour. The NFU wanted to see the level of the offset increased to encourage employers to improve the standard of the accommodation they provided. The 50 Club Horticultural Employers’ Association also argued for the level to be raised as an incentive for farmers to invest in accommodation. The Association of Labour Providers again stated that most labour providers no longer provided accommodation as it was not economically viable to do so.

4.56 In their joint submission, the British Hospitality Association (BHA), the British Beer & Pub Association (BBPA) and Business In Sport and Leisure (BISL) claimed that the offset remained below the economic rate for what was being provided. A recent BHA survey found that accommodation was provided because workers were not based locally or because local accommodation was expensive. The Association of Licensed Multiple Retailers advised that the low level of the offset and the current economic climate were forcing operators to generate as much income as they could, which included renting out accommodation previously used by low-paid staff. It wanted to see the level of the offset raised to £60 per week.

4.57 During a visit to Wales, we spoke to a group of hoteliers who had different opinions on the offset. Some supported the current arrangements (although wanted the level raised) as there was a clear benefit for the employer in having the workers on site. Others, however, felt the offset encouraged short-termism. Workers (mainly migrants) saved money, which they then took with them when they returned home. There was no benefit, therefore, to the local economy, and it also provided workers with a false situation (i.e. subsidised accommodation).

4.58 The TUC supported the retention of the offset and its increase each year at the same rate as the adult rate. It said complaints about misuse were about arrangements that employers made to avoid the law, most commonly striking a deal with an accommodation provider. The TUC said the revised guidance issued in 2006 to deal with abuses was never tested and had now been removed from the Government’s website. It wanted to see this revisited. In its evidence, the Government advised that of the 1,746 cases of minimum wage non-compliance found in 2008/09, only 35 involved employers who had failed to implement the offset correctly.

4.59 Stakeholders have again this year reported differing concerns with the current offset provisions. It is clear that some sectors rely on it as a means of obtaining workers. From a worker’s perspective, without it they would sometimes be unable to take up employment. The low monetary level of the offset is a concern to those who provide accommodation, but affordability of accommodation to the workers is crucial. Although we note the concerns raised, we have not received the more detailed evidence we were seeking and that leads us to conclude that substantial change to the current arrangements is neither necessary nor desirable. We will, however, keep the issue under review and if evidence nor forthcoming that leads us to a different conclusion, we will report as appropriate.

Voluntary Workers

4.60 Voluntary workers are outside the scope of the minimum wage as they are not classified as ‘workers’. Under Section 44 of the National Minimum Wage Act 1998 voluntary workers are defined as: those working for specific organisations (a charity, voluntary organisation, associated fund-raising body, or a statutory body) and receiving only very specific payments and benefits-in-kind. Certain conditions must be met to ensure that the voluntary worker does not qualify for the minimum wage. Voluntary workers may not receive any monetary payment apart from the reimbursement of expenses incurred in the performance of duties or expenses incurred in order to enable the voluntary worker to perform their duties.

4.61 In January 2009 the Government extended the range of expenses that could be reimbursed to voluntary workers to include those to enable them to perform their duties. This included expenses to cover the cost of care of dependants needed to enable the voluntary worker to do the voluntary work, expenses to cover the cost of a lunch during a break in the voluntary activities, and expenses to cover the cost of travelling to and from the voluntary location. We will continue to monitor changes in the law on expenses and benefits-in-kind.

4.62 In recent reports we noted the concerns raised by the voluntary sector about minimum wage arrangements, particularly definitional problems such as who a voluntary worker was and what qualified as a benefit-in-kind. This year there was little evidence from stakeholders on voluntary workers, with the focus primarily on unpaid work experience. We continue to see the way forward as the provision of better guidance by the Government, and continuing dialogue between the voluntary sector and enforcement authorities, all within the existing minimum wage framework. In April 2009 the Government updated the guidance it had developed with stakeholders on voluntary workers and this was published on the DirectGov and Business Link websites. We will continue to monitor the impact of the revised guidance and any new guidance produced by the Government.

Volunteers

4.63 There is a clear distinction between voluntary workers and volunteers under the National Minimum Wage Act 1998. Unlike voluntary workers, who must work either for a charity, a voluntary organisation, an associated fund-raising body or a statutory body, volunteers can volunteer for anybody and not just for organisations in the not-for-profit sector. Like voluntary workers, volunteers are exempt from the National Minimum Wage as they are not classified as ‘workers’ but they can receive reasonable expenses only. Volunteers are sometimes provided with refreshments during the volunteering day and clothing and equipment to enable them to perform their duties. Reasonable provision of these items does not define the volunteer as a ‘worker’ and there will be no entitlement to the minimum wage.

4.64 This year we received little evidence from stakeholders on volunteers. The Rural Shops Alliance (RSA) said that trends in recent years had seen an increase in the number of community shops, mainly run by volunteers. It said that current legislation meant that paying anything that could be construed as remuneration had to be paid at or above the minimum wage. The RSA said that it would like to see the rules on volunteers reviewed so that there was more flexibility in rewarding volunteers. The National Council for Work Experience (NCWE) said that it had received enquiries from people confused about the minimum wage and whether it should be paid to volunteers. NCWE said it believed there was confusion and inconsistency with the guidance and advice given by different government departments.

4.65 Encouraging people, and particularly young people, to undertake volunteering is high on the Government’s agenda. On 13 January 2009 it published a social mobility White Paper ‘New Opportunities, Fair Chances for the Future’, setting out measures to promote social mobility. One of the programmes announced was ‘v’ Talent Year. ‘v’ is the national youth volunteering organisation set up to implement the recommendations of the Russell Commission in England. ‘v’ is investing £10 million in the Talent Year scheme aimed at 16–25 year olds who work to achieve qualifications at NVQ Level 2. The scheme is delivered through local authorities’ young children’s and young people’s services departments and the first cohort commenced in March 2009. The scheme runs for 44 weeks and there are 1,000 volunteering opportunities over 2 years in 33 local authorities. Around 40 per cent of volunteers will be not in education, employment or training (NEET) and will have access to expenses and subsistence (up to £100 per week). There is also possible access to a personal development grant of up to £1,500 at the end of their programme.

4.66 The scheme has more recently been expanded to enable the programme to be delivered within different sectors, including 9 English further education colleges. In total the programme will provide structured volunteering opportunities for a further 900 young people over 2 years. ‘v’ Talent Year volunteers can be recruited from the local community, and may include recent college graduates, alongside NEETs and others who wish to gain experience in education institutions.

4.67 Voluntary schemes including the ‘v’ volunteering programme for young people have been carefully written to comply with the rules for voluntary workers and the minimum wage. We recognise the benefits to people undertaking voluntary work and it is not our intention to stop individuals volunteering. However, our underlying concern is that the number of people being encouraged back to work via unpaid full-time volunteering, but exempt from the minimum wage, is rapidly increasing. We will continue to monitor these schemes closely to ensure that they comply with the National Minimum Wage Act.

People on Unpaid Work Experience

4.68 Work experience placements undertaken by students as part of a UK-based higher education course or further education course are exempt from the National Minimum Wage, provided the placement lasts less than one year. In these circumstances, people doing work experience are under no obligation to perform work and are not ‘workers’ for minimum wage purposes. In determining if someone is a ‘worker’, key features include whether an individual is remunerated through money or benefits-in-kind (beyond basic expenses) and whether there is a contractual obligation (which could be written, oral or implied) on the individual to perform the work and, in return, an obligation on the employer to provide work.

4.69 Some students undertaking work experience take a job that is not part of their course and they are entitled to the minimum wage unless a specific exemption applies. Similarly, students aged 18 and over who are taking a ‘gap’ year between school and higher education must be paid at least the minimum wage for any work they do.

4.70 Clearly, work experience can be highly valuable and we welcome good quality opportunities that operate within the terms of the National Minimum Wage legislation. There has been growth in the number of internships but also growing evidence of abuse, particularly in certain sectors.

Interns and Internships

4.71 The terms ‘intern’ and ‘internship’ do not exist under National Minimum Wage legislation. Unpaid internships can be advertised by employers but if the actual working arrangements are such that the person is a ‘worker’ then, by law, they are entitled to be paid at least the minimum wage. If an advert offers a reward for the work to be performed, either in the form of a monetary payment or a benefit-in-kind, then this would suggest the person is likely to be a ‘worker’. The greater the reward, the more likely that a worker’s contract will be formed and that the person will be a ‘worker’ and entitled to the minimum wage.

4.72 The Government has implemented a number of unpaid work experience initiatives that have been described as internships. The Department for Business, Innovation and Skills (BIS) launched its web-based Graduate Talent Pool in July 2009, a scheme that matches employers with graduates. Over 5,000 internship places have so far been confirmed through universities and local businesses and through organisations like Network Rail, Microsoft and the Police Service. Employers are encouraged to pay a wage that reflects both the value of the intern’s contribution and the level of training and support provided. The website includes a link to minimum wage guidance and employers are advised that it is their responsibility to ensure that they comply with legislation. From January 2010, if an internship is unpaid, graduates already receiving Jobseeker’s Allowance for 6 months or more will be able to do an unpaid internship for up to 13 weeks alongside claiming an allowance and looking for work.

4.73 In July 2009 the Government announced a new campaign called Backing Young Britain, an initiative aimed at uniting business and government to create thousands of opportunities for young people. Ministers announced funding of £40 million for over 20,000 additional internships so that graduates and non-graduates could get high quality work experience. The website advises that an intern should not be a substitute for work done by regular employees and that, as a minimum, the organisation should cover any necessary work-related expenses incurred by the intern.

4.74 A new initiative was announced by the Government in October 2009 that planned to help create 10,000 skilled internships aimed at helping university graduates find employment with small companies. Under the initiative, which the Federation of Small Businesses (FSB) helped develop, participating graduates would be able to get a grant of £100 a week towards their wages, which would then be topped up by their employer. The FSB said that it would be promoting the scheme among its members and encouraging all small businesses to link up with university careers services in order to offer vacancies and create placements.

4.75 On 18 January 2010 the Government announced the creation of an online National Internship Service for undergraduates and graduates. It aimed to work with business to give individuals access to opportunities and information to develop their employability skills and establish standards to benefit interns and employers. Students from low-income backgrounds would be eligible for bursary funding. This initiative is one of the Government’s responses to the final report from the Panel on Fair Access to the Professions published in July 2009 which challenged the Government to do more to ensure that people, regardless of their social or economic background, can succeed in the professions.

4.76 Evidence from stakeholders continues to indicate that labels such as ‘volunteer’, ‘intern’ or ‘work experience’ were sometimes applied to activities that are clearly work and for which at least the minimum wage should be paid. In its evidence, Equity said that there was an ongoing problem of unpaid work, particularly with walk-on roles that offer no pay. Interns Anonymous claimed that interns were being used by employers to cut the cost of basic administration and entry level jobs. In his evidence, Mark Watson submitted 140 adverts for unpaid interns and work experience that appeared to break minimum wage rules. In its oral evidence, the National Union of Journalists (NUJ) said that many people who were undertaking work experience were actually doing jobs that employers relied on, particularly in television and consumer magazines. It said that there was an over-supply of people desperate to work in the media industry and employers have built unpaid work placements into their business model. In its oral evidence BECTU said that some well established companies used the terms ‘volunteer’, ‘intern’, ‘trainee’ or ‘work experience’ in the entertainment industry to encourage people to undertake unpaid roles which included basic office work, digitising material and writing up transcripts.

‘…in addition to the threat of exploitation and low pay, there is a continuing problem of performers carrying out unpaid work.’

Equity evidence

4.77 It is becoming increasingly commonplace in certain sectors, particularly the media, entertainment industry and in politics, for employers to demand a period of unpaid work experience as a means of getting into the industry. The Government’s Fair Access to the Professions report highlighted the issue of unpaid internships and how they serve to limit career choices to those who can afford to work unpaid and those who live near London. We received evidence from several individuals and organisations that confirmed this finding. Interns Anonymous claimed that it was difficult to gain employment with MPs or political parties without intern experience in parliament. In its oral evidence the NUJ said that it was hard to get a job in journalism without having previous work experience but despite people undertaking internships, there was often no prospect of a permanent job for interns. It estimated that only 30 per cent of unpaid journalist positions resulted in permanent jobs. In his evidence Mark Watson said that a period of unpaid work was now regarded as an unofficial price of entry into many industries, resulting in large numbers of young people failing to be paid the minimum wage where it was due. The TUC said it did not believe that employers should be able to demand a toll of unpaid work before awarding jobs as this puts those people without parental financial support at a disadvantage.

‘Many interns felt that the only way to crack their preferred job market was to undertake unpaid internships, often for 3 months or longer.’

Interns Anonymous evidence

4.78 We recognise the benefit to young people undertaking work experience and do not want to stop individuals undertaking genuine work experience placements or discourage employers from offering good quality opportunities. Our view has always been that unpaid work experience is an area where wider dissemination of guidance and more effective enforcement is needed, rather than any change to the rules themselves. However, we are concerned about the increasing number of organisations that are relying on interns, often for several months, to perform work for no pay. The evidence we received on unpaid work experience indicates that there is systematic abuse of interns, with a growing number of people undertaking ‘work’ but excluded from the minimum wage.

4.79 We have expressed our concerns about unpaid internships to BIS throughout the year and it has responded positively. In its evidence to us, BIS said that it recognised the concern that was expressed in the media about the inappropriate use of internships. It said that it would consider whether there was anything further it could do to make its guidance on work experience clearer for employers and interns and increase awareness of the guidance. We further encourage BIS as part of this work to engage directly with the sectors in which lengthy unpaid internships have become the norm. We invite BIS to present its proposed strategy to us by the summer.

4.80 We have also raised our concerns about unpaid internships and effective enforcement with HMRC. HMRC responded that in none of the complaint cases it had received in 2009 concerning interns was there sufficient evidence to suggest that the individuals were ‘workers’. It reported that it cannot get reliable figures on the number of interns who complain because it does not record whether a worker regards themselves as an intern when they ring the helpline. Stakeholders confirmed that there was a reluctance on the part of some people undertaking work experience, who believed they were a ‘worker’, to report complaints to HMRC.

4.81 We understand that in some cases it is not clear or easy to define whether a person is a ‘worker’ or on a period of unpaid work experience. However, while it is not illegal to advertise jobs which do not pay at least the minimum wage, we believe that HMRC should adopt a more pro-active approach to investigating cases and sectors where the term ‘intern’, ‘volunteer’ or ‘work experience’ is being applied, particularly when work is clearly being advertised. HMRC has indicated that it may be implementing a new enforcement approach in relation to interns. We judge this is likely to be appropriate and have asked HMRC to keep us aware of any developments. We will monitor these carefully.

Homeworkers and Fair Piece Rates

4.82 The Fair Piece Rate (FPR) system provides a mechanism under the National Minimum Wage for workers to be paid by reference to their output rather than their hours of work. Where, however, an employer controls their hours of work, the workers are regarded as undertaking ‘time work’ for National Minimum Wage purposes, and their total pay must equal at least the minimum wage for each hour worked. The most likely situation for application of the FPR arrangement is, therefore, to workers undertaking work at home (‘homeworkers’), where hours are not usually controlled.

4.83 In our 2008 Report we recommended that the Government take stock and evaluate whether the FPR system was meeting its objectives. The Government accepted this recommendation, but at the time of our 2009 Report it was still undertaking its review. The Government’s evidence this year provided details of the review’s outcome. While the consultation, rather disappointingly, only generated responses from five stakeholders, it said the overwhelming message from this group was that more needed to be done on the publicity of FPR, and some said there should be better enforcement. It reported that no stakeholder recommended a change in the FPR system.

4.84 The Government will take action as a result of this evaluation. There will be an online leaflet specifically aimed at homeworkers as part of this year’s publicity and awareness campaign. In addition, the Government plans to hold a small trial of placing postcards in newsagents’ windows, which may create an awareness of fair piece rates. This is the first time the Government has specifically tried to reach this audience and it said it will evaluate the results.

4.85 In its evidence to us the TUC said it had found it hard to identify any instance of the FPR regime being used as intended, but that there were a number of examples of abuse by employers. It thought there may be a case for scrapping the arrangements, restricting its use to certain occupations, or at the very least reviewing the arrangement, tightening the regime and rigorously enforcing it. The TUC, Unite and Oxfam flagged up the emergence of the use of piece rates as a problem in the hotel sector. There were examples of hotels using contract cleaning companies and employment agencies for room cleaning. Piece rates were set for cleaning the rooms, often at unattainable levels, making it impossible for workers to achieve the National Minimum Wage. We also received evidence of such practices during oral evidence sessions and on Commission visits.

4.86 The BHA said it had re-issued guidance to members that they should ensure that agencies did not set unrealistic work targets for housekeeping staff which would lead to their pay for their actual hours worked falling below the minimum wage. Evidence from another employer organisation told us of a lack of clarity in the official minimum wage guidance and a lack of enforcement. It said that agencies often abused wage systems for competitive advantage. Further, the style of working in the sector was nearer ‘piece rate’ than ‘time work’, but the sector largely failed to carry out the required time study measurements to ensure fairness.

4.87 It is too early to evaluate the success of the Government’s publicity and awareness raising campaign for homeworkers as a result of their review of fair piece rates. We will, however, monitor the campaign and would welcome evidence from the Government on its impact for our next report.

4.88 In the case of contract and agency cleaners in hotels, we received evidence that, although cleaners are paid by reference to piece rates, their hours of work are controlled. This suggests that this is ‘time work’ for minimum wage purposes and, although it can be legitimate to pay by piece rate, the total earned must equal at least the minimum wage for each hour worked. We were presented with evidence of systemic abuse, with both misuse of piece rate arrangements and hours of work being under-recorded, leading to lower rates of pay than were due to the worker by law. We are concerned about the treatment of these workers and the apparent widespread nature of the problem. We recommend that HMRC investigates whether contract and agency cleaners in the hotel sector are receiving their entitlement under the National Minimum Wage for their hours worked.

Workers Receiving Tips

4.89 On 1 October 2009 an amendment to the National Minimum Wage Regulations came into force that prevents the use of tips, gratuities, service charges and cover charges as payment or part payment of the National Minimum Wage. The Government has also carried forward its proposal to develop the principles of a voluntary code of practice and supporting guidance for tipping sector businesses on how to be transparent with their customers on the use of tips. The code of best practice was agreed with a range of stakeholders and launched alongside the change in the law. The code is enforced through consumer protection from unfair trading regulations.

4.90 At the time of our last report we received divergent evidence from employers and trade unions on the possible impact of this change: some employer organisations had concerns with the possible adverse impact on costs and jobs, while trade unions welcomed the change to the law, believing that it would have a very modest overall impact on the tipping sectors. Similar differences in views were expressed again for this report. In addition, both employer and trade union representatives recognised our role in monitoring the changes which have now been introduced. Evidence from trade unions also voiced concern about achieving effective enforcement of the changes and questioned whether there was sufficient information and support available from official sources.

4.91 It is too early for any proper analysis on how the change has worked in practice and for us to draw any firm conclusions. We will monitor the change and take a view as further evidence emerges for our next report.

Seafarers

4.92 Seafarers are covered by the minimum wage while they are employed to work on a ship registered in the UK while it is working in the UK or its internal waters (i.e. the estuaries and also the sea between the UK mainland and its many islands). In addition, a seafarer working on a ship registered in the UK must be paid the minimum wage wherever in the world that ship may be, unless:

• all the work takes place outside the UK (and its internal waters); or
• they are not normally resident in the UK and the ship is outside the UK (and its internal waters).

4.93 In its evidence this year, the National Union of Rail, Maritime and Transport Workers repeated its call for the minimum wage to apply to all ships trading solely within UK territorial waters. The Chamber of Shipping reported that it was waiting to receive clarification from the Government regarding non UK-resident seafarers’ entitlement to the minimum wage. It also reported that any legislation that required operators of UK-flagged ships to increase their employment costs above market rates would be very likely to lead to a large number of ships flagging out. We understand there are differing legal opinions on whether the minimum wage can be applied to foreign-flagged ships in UK territorial waters. We encourage all parties to continue with their dialogue to try and resolve the issue.

Workers Receiving Tax-free Travel and Subsistence Payments

4.94 We have received evidence this year about ‘travel and subsistence schemes’ operated by ‘umbrella companies’. Under these schemes, workers who are deemed to be working in temporary workplaces sacrifice some income before tax in relation to their travel expenses and in return receive tax-free travel and subsistence payments from their employer, under a dispensation issued by HMRC. Stakeholders have raised a number of concerns regarding the use of these schemes, not least questioning the legality when deducting income before tax takes the worker below the National Minimum Wage.

4.95 The advantage to workers of using these schemes is that they get slightly higher net pay, as they pay less tax and National Insurance. However, the longer-term disadvantage is that paying less National Insurance means the worker may not make sufficient contributions to be eligible for earnings-related social security benefits.

4.96 From the evidence we have seen, by using this scheme, the worker is only a few pounds a week better off. We are, however, concerned that workers affected may not be fully aware of the implications and that longer term they may be worse off. We know that in some of the sectors where these schemes are operated, for example agriculture and food processing, a large number of migrant workers are employed and these are a particularly vulnerable group.

4.97 In November 2009, the Gangmasters Licensing Authority (GLA) advised labour providers of its intentions to clamp down on the use of these schemes. In particular, it intended to ensure that: ‘umbrella companies’ held a GLA licence; evidence was provided to show that workers had actually incurred these travel expenses; and workers were not being charged an administration fee for using the scheme.

4.98 In the Pre-Budget Report in December 2009, the Government stated its commitment to addressing the problem of the potentially exploitative arrangements which are implemented for some workers paid at or near the National Minimum Wage. It said it would launch a consultation in the New Year inviting views on proposed changes to the National Minimum Wage Regulations and whether this was the best approach to tackling this problem. We look forward to seeing the Government’s consultation and will respond to this as appropriate.

Conclusion

4.99 The Government asked us to review the impact of the National Minimum Wage on certain groups of workers. All of the groups we look at in detail remain vulnerable, but not all of them have been adversely affected by the recession to the same degree. Indeed, in terms of job loss, this recession has particularly affected men. Women, older workers and disabled people have seen less of an impact on their earnings and labour market prospects than the working age population. Overall, ethnic minorities and migrant workers have also been less affected by the recession, although the impact varies within the groups. It is young people and those without qualifications who have experienced the largest adverse impact from the recession.

4.100 The evidence we have received this year has led us to recommend that sector specific guidance for the entertainment sector is necessary to address the issues faced by this sector. In addition, we have had evidence presented on the misuse of the Fair Piece Rate system by contractors and agencies operating in the hotel cleaning sector, so we have recommended that HMRC investigates whether contract and agency cleaners in the hotel sector are receiving their entitlement under the National Minimum Wage for their hours worked. We have not received the more detailed evidence we had requested in relation to the operation of the accommodation offset and have decided substantial change to this is not necessary. We will, however, keep this issue under review. The misuse of exemptions under the National Minimum Wage Act in relation to volunteers and interns has been widely reported in the media and we have received evidence from stakeholders to back this up. We encourage BIS to engage directly with those sectors in which lengthy unpaid internships are prevalent, and HMRC to tackle abuse through effective enforcement.

4.101 This chapter has highlighted the different impacts the minimum wage and the recession have had on various groups of workers. The next chapter considers the position of young people in more detail.