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Reports & Publications

4. Compliance and Enforcement

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The vast majority of employers are complying with the National Minimum Wage. We are not complacent, however, because some workers continue to be underpaid. Although overall awareness of the existence of the minimum wage is very high, we recommend further publicity for the headline rate, the enforcement service and the Helpline number to improve awareness among the public. The enforcement system is generally seen as effective, but we hope that Government will strengthen it further by using its initiatives to promote compliance with tax and other legislation also to tackle non-compliance with the minimum wage. We welcome the pilot projects being developed by the Government in partnership with external agencies to promote the reporting of non-compliance.

We also welcome proactive enforcement by the Inland Revenue and Government publicity for enforcement actions and we hope that they will do more of both of these. Some workers continue to experience detriment and dismissal related to the minimum wage, and we recommend that the Inland Revenue and the Advisory, Conciliation and Arbitration Service (ACAS) continue to monitor service to customers at the boundary between the two organisations and examine the scope for action to strengthen it.

4.1 We said in our second report that the success of the National Minimum Wage lies in compliance and that effective enforcement is the key to compliance. We believe that this continues to be true. In preparing our second report, we found strong evidence that most employers were complying with the minimum wage, but we concluded that substantial numbers of workers were being paid below the minimum wage. To enable us to make an up-to-date assessment for this third report, we invited people to comment on compliance and enforcement in their evidence to us and we commissioned specific research. We raised compliance and enforcement during our visits, and we visited the Inland Revenue National Minimum Wage team and the National Minimum Wage Helpline in Newcastle. The central issues we examined were the degree of compliance, progress in enforcement, and detriment and dismissal related to the minimum wage.

Compliance 4.2 In our first report we suggested that, as far as possible, the National Minimum Wage should be self-enforcing. A key condition for compliance, therefore, is that there should be a high level of awareness of the minimum wage among both workers and employers. So we begin by examining the state of awareness of the minimum wage two years after it came into operation.

Awareness

4.3 In our second report we noted that evidence suggested that a high level of awareness of the minimum wage had been achieved immediately after its implementation in 1999. But, as the impact of the initial publicity faded, we were worried that awareness might be reduced. There was also some confusion about the Development Rate and more detailed rules, and we were told that workers from ethnic minorities were frequently unaware of the minimum wage and how it applied to them. We recommended, therefore, that the Government should continue to publicise the minimum wage widely and, in particular, promote it effectively among the ethnic minority communities, supported by the availability of literature and advice in ethnic minority languages. We also believed it was important that, as part of the campaign to publicise the minimum wage, the Government should target homeworkers.

4.4 The Government's evidence to us described three further campaigns to increase awareness – one targeted at ethnic minority communities in particular regions in Autumn 1999, and two more to publicise the June and October 2000 upratings – and two other initiatives which had been developed following our second report. The first is an internet site for workers and employers: Tailored Interactive Guidance on Employment Rights (TIGER) at www.tiger.gov.uk. The Government plans to establish an e-mail link from this to the National Minimum Wage Helpline, and the link should be operational in June 2001. The second initiative is a DTI/Inland Revenue team – Customer Responsive Outreach Work (CROW) – which makes presentations on the minimum wage at seminars and conferences organised by, for example, Chambers of Commerce. The aim is to carry out about 25 of these per year. The Government also issued new leaflets on the minimum wage for employers, employees and young workers and produced short guides on the minimum wage in ethnic minority languages.

The Government and the LPC have always recognised that the national minimum wage will only be truly successful if it [is] so widely known about and accepted that there is widespread voluntary compliance.

The Government's evidence

4.5 We welcome the action the Government has taken to publicise the minimum wage since our last report. We are also pleased that, in his Parliamentary statement announcing that the main rate of the minimum wage would be increased to Ł4.10 per hour in October 2001, the Secretary of State for Trade and Industry said the Government has 'already run an advertising campaign; no doubt we will want to do so again, to publicise the fact that there is to be an increase to Ł4.10 in October' (House of Commons, 5 March 2001).

4.6 We looked at the current state of awareness as shown by research, evidence and the results of our consultation. The external evaluation conducted for the Department of Trade and Industry of the publicity campaign on the October 2000 uprating of the minimum wage shows that 98 per cent of employers in the five low-paying sectors surveyed, 99 per cent of low-paid workers and 90 per cent of the general public knew of the existence of the minimum wage. But awareness of the actual rate of the minimum wage and of the National Minimum Wage Helpline was considerably lower. The results are shown in Table 4.1.

*Table 4.1*
Awareness of the National Minimum Wage Following the October 2000 Uprating of the Adult Rate
	Employers in low-paying sectors	Low-paid workers	General public
	Percentage aware
The existence of the National Minimum Wage	98	99	90
The new adult rate	51	51	27
The National Minimum Wage Helpline	41	21	Not tested
Source: Department of Trade and Industry Note: Employers were sampled in five low-paying sectors: retail, hospitality and catering, care work, hairdressing, and cleaning businesses. Low-paid workers were aged 22 or over and earning below Ł4.50 per hour; the sample also included some who were seeking work. The general public sample comprised those aged 16 and over.

4.7 The evaluation also found that only 1 per cent of low-paid workers saw the Helpline as the first stop for advice compared with 41 per cent who cited a Citizens Advice Bureau (CAB). The proportion of low-paid workers who knew how to make a complaint of minimum wage underpayment was 7 per cent.

4.8 Table 4.2 shows the results from the external evaluation of the publicity campaign on the June 2000 uprating of the minimum wage for workers aged 18–21. After the campaign, 98 per cent of employers in the 4 low-paying sectors surveyed and 92 per cent of the young workers knew of the existence of the minimum wage. But only a minority of employers and young workers were aware of the new youth rate or the National Minimum Wage Helpline.

*Table 4.2*
Awareness of the National Minimum Wage Following the June 2000 Uprating of the Youth Rate
	Employers in low-paying sectors	Young workers
	Percentage aware
The existence of the National Minimum Wage	98	92
The new youth rate	24	20
The National Minimum Wage Helpline	32	14
Source: Department of Trade and Industry Note: Employers were sampled in four low-paying sectors employing large numbers of young people: retail, hospitality and catering, care work, and hairdressing. Young workers were aged 18–21 and in employment earning less than Ł4 per hour.

Low Pay Commission Research

Only 5 homeworkers out of 105 did not know that they were entitled to the National Minimum Wage, while, of 58 homeworkers contacted after 1 October 2000, half knew about the increase to Ł3.70.

National Group on Homeworking, 2001. Monitoring the Impact of the National Minimum Wage on Homeworkers

Of 368 students in university, further education, college and school who were surveyed, most were aware of the minimum wage, but over two-thirds did not know what the Development Rate was and, when asked about their own entitlement, under one-third answered correctly.

Rosemary Lucas, 2001. The National Minimum Wage: What Can Young Workers Tell Us?

4.10 We also examined the state of awareness among ethnic minorities. We commissioned research from Colgan et al. (2001) on the impact of the minimum wage in a deprived and ethnically diverse area of North London. They found that among 225 employees interviewed, including 193 from ethnic minorities, awareness of the existence of the minimum wage was nearly 90 per cent among White British and Irish workers but lower among other ethnic groups: for example, just over 60 per cent among Afro-Caribbean workers and under 50 per cent among Turkish-Kurdish workers. There were similar variations in levels of awareness that the minimum wage is 'a law you must obey'. Among those who had heard of the minimum wage, knowledge of the correct rate was more equal across the different ethnic groups. Among ethnic minority employees awareness of how to pursue a complaint of underpayment was around 7 per cent. Among 129 employers interviewed, including 111 from ethnic minorities, awareness of the existence of the minimum wage and that it is 'a law you must obey' was again lower among ethnic minority employers than among White employers.

4.11 We also commissioned research by Leicester City Council among ethnic minority workers in Leicester. This study, covering 54 workers, found slightly lower awareness of the existence of the minimum wage (83 per cent) than among low-paid workers generally, but a higher proportion (70 per cent) were able to say correctly the rate to which they were entitled. The proportion who would contact the Inland Revenue if they wished to complain about underpayment was 1 in 20 (Leicester City Council, 2001).

4.12 We welcome, therefore, the Government's intention to mount a further publicity campaign in the run-up to the next uprating of the minimum wage in October. We recommend further publicity for the headline rate of the National Minimum Wage as well as for the existence of the enforcement service and the National Minimum Wage Helpline number. We suggest that publicity on the uprating is followed up with ongoing publicity to continue to promote awareness, and that publicity is targeted to reach different groups of workers – such as young people, ethnic minority workers and homeworkers – as well as employers, particularly small businesses.

Compliance and Non-compliance

4.13 ONS (2000) estimates that 300,000 jobs were paid below minimum wage rates in Spring 2000. But neither of the surveys on which this estimate is based – the Labour Force Survey (LFS) and the New Earnings Survey (NES) – is designed to monitor compliance with the minimum wage. Neither survey can identify people such as apprentices, those undergoing training and those eligible for the accommodation deductor who may legally be paid less than the minimum wage. In addition, the data show some 'bunching' just below minimum wage rates. The grossed NES results show that of those employees aged 22 and over with an hourly pay rate below Ł3.60, 40 per cent had an hourly rate of Ł3.59. We would be surprised if employers were deliberately avoiding paying the National Minimum Wage by such a small amount. A further 18 per cent were paid between Ł3.50 and Ł3.58 per hour.

4.14 The NES information relates to earnings for a single pay period in April, and employers provide information for gross earnings and hours of work separately. This information is then used to derive an hourly rate. The results suggest that this may have caused minor inaccuracies in reported hours or earnings, resulting in some jobs being shown as below the minimum wage. Moreover, similar surveys in countries with long-established minimum wages where compliance is regarded as universal, such as the United States and France, show large numbers of workers below the minimum rates. Just as for our second report, therefore, we have examined a range of information sources, including other statistics, research and the results of consultation.

4.15 Table 4.3 gives figures on minimum wage inquiries and complaints to, and enforcement action taken by, the Inland Revenue. They suggest that there were fewer Helpline calls and complaints in 2000/01 than in the preceding year, and that the majority of calls have been to obtain information and advice rather than to complain about underpayment. Inland Revenue investigations between April 1999 and February 2001 found about 3,200 employers (around 0.2 per cent of all UK employers) not complying with the minimum wage.

*Table 4.3*
National Minimum Wage: Inquiries and Complaints to Inland Revenue and Inland Revenue Enforcement Action
	April 1999– March 2000	April 2000– March 2001	Total April 1999– March 2001
	Percentage aware
Inquiries received by Helpline	120,562	77,473	198,035
Complaints of underpayment	4,591	1,823	6,414
Visits to employers	4,548	4,475	9,023
Enforcement notices issued	136	213	349
Penalty notices issued	1	61	62
Value of underpayments identified	Ł1.2 million	Ł3.0 million	Ł4.2 million
Source: Department of Trade and Industry Note: In addition to the above, a Department of Trade and Industry National Minimum Wage Helpline received 50,000 telephone inquiries between January and March 1999.

The TUC told us that they recognised that the vast majority of employers comply with the minimum wage. The DTI and Inland Revenue had done a good job in promoting awareness and tackling non-compliance, and compliance was better than might have been expected. But there was still a hard core of non-compliance concentrated in particular sectors which needed further attention.

TUC oral evidence

4.16 These figures do not capture unreported non-compliance. So the research which we commissioned and the evidence submitted to us have been important sources of information to feed into our assessment. They do not give a quantitative indication of compliance and non-compliance, but they do give a consistent message throughout: the vast majority of employers are complying with the National Minimum Wage, although underpayment continues to affect some workers.

4.17 We are encouraged that a number of advice organisations submitting evidence consider that there is generally a high level of compliance with the National Minimum Wage. NACAB, for example, 'recognises that, across the economy as a whole, there is widespread compliance with the NMW'. The Low Pay Unit's experience is that 'employers who simply refuse to pay the NMW are in the minority – but a minority that cannot be ignored'. Yorkshire & Humberside Low Pay Unit encounters 'relatively few cases of underpayment'. And the Northern Ireland Association of Citizens Advice Bureaux has found that 'in broad terms there has been a reduction in the number of NMW cases since its introduction in April 1999'.

The vast majority of employers were meeting their obligation to pay the NMW but cases of non-compliance were reported regarding casual workers in the electrical contracting sector and a number of small manufacturing companies, mainly in the North of England and the West Midlands.

Amalgamated Engineering & Electrical Union evidence

4.18 In addition, research which we commissioned from NACAB reported that in the first nine months of the minimum wage CABx received an estimated 50,000 minimum wage-related inquiries. In contrast, in late 2000 CABx were receiving an estimated 5,000 minimum wage-related inquiries per year. The latter figure compared with an estimated 75,000 inquiries about the statutory right to paid holidays and 40,000 about statutory maternity or parental rights at work.

Low Pay Commission Research

Hotel A paid its cleaners Ł3.25 per hour. The manager said, 'That's a good rate of pay for a cleaner round here. They don't complain and none have asked for an increase… . If they don't like it they can go elsewhere.'

Hotel B was a privately owned hotel and restaurant located in a small village… . Twenty-five workers were employed… . The employer was refusing to implement the June and October 2000 increases in the National Minimum Wage… . The employer claimed that the workforce had not requested … the National Minimum Wage and stated that 'if they want it, they can go elsewhere and get it'.

Heyes and Gray, 2001. The Implications of the National Minimum Wage for Training and Employment in Small Firms

4.19 Evidence and research also indicate, however, that some workers are not receiving their entitlement. The Independent Care Organisations Network commented that there is a substantial amount of non-compliance in the care sector; one employer providing domiciliary care had reported that 'the attitude "I'll wait till they catch me" is rife in the West Midlands', for example. The Network suggested that if local authority purchasers did not check for payment of the minimum wage by all their providers, it 'undermines the position of providers who do pay the NMW and is manifestly unfair'. UNISON finds that 'there remain some stubborn problems with NMW enforcement, despite the largely successful and enthusiastic efforts by the Department for Trade and Industry and the Inland Revenue to enforce the legislation. ... Some employers continue to misinform employees by claiming that part-time staff, or those on temporary contracts or "in training" are not covered by the legislation.' The CBI 'accepts reports from the CAB and others that some problems with compliance exist'. NACAB's written evidence describes a range of cases where workers have been underpaid the minimum wage. NACAB reports that reasons given by employers to justify non-payment of the minimum wage included that the work done was part-time and that the worker was receiving Working Families' Tax Credit.

4.20 In our second report we said that many workers from ethnic minority communities are particularly at risk of being exploited because of a lack of awareness. The evidence we have received for this third report shows underpayment continuing to affect ethnic minority workers. For example, Yorkshire & Humberside Low Pay Unit reported pay rates of Ł2 per hour and less among men from Bangladesh, India and Pakistan who have come to the UK following marriage and who need to show non-reliance on public funds. The research which we commissioned from Leicester City Council (2001) found that among 54 ethnic minority workers surveyed, 30 workers (55 per cent) received pay which averaged below the minimum wage. Due to earnings fluctuating week by week an additional three workers received wages below the minimum wage level in some of their pay periods. Overall this meant that, out of the sample of 54, a total of 33 workers (61 per cent) were underpaid the minimum wage. The majority of these were employed in the clothing and textiles sector. The research found that employers used various methods to avoid paying the minimum wage, including cutting piece rates, falsifying pay statements and not paying for work done. A larger study of the effect of the minimum wage in an ethnically diverse area in North London (Colgan et al., 2001) found that of 80 employees who gave their hourly pay rate, 15 per cent (12 employees) were being paid below the minimum wage; but many employers and employees were reluctant to disclose earnings information so these results should be seen as indicative.

Low Pay Commission Research

A tribunal heard an application from a woman who worked in a nursery for five days a week, working for six-and-a-half hours per day. She was paid Ł10 a day. Her employment was terminated … and she brought a claim of breach of contract, on the basis that her contract had contained an entitlement to be paid the NMW and she had not received the correct hourly rate. The owner of the nursery argued that she was not an employee, but rather that she was a volunteer who was paid a daily sum to cover her expenses. The tribunal upheld the application. The tribunal thought that [she] was an employee. She worked under the nursery owner's direction, she had to work fixed hours and she had to inform the owner if she was unable to work because of sickness.

Incomes Data Services, 2001. Report to the Low Pay Commission – Tribunal Cases and the National Minimum Wage

4.21 In our second report we noted that the minimum wage was making a difference to some homeworkers but that substantial numbers of them continued to be underpaid. For this report we commissioned research into the impact of the minimum wage on homeworkers from the National Group on Homeworking (NGH). The sample was drawn from homeworkers who contacted the NGH for advice or information or whom the NGH contacted through its existing homeworker contacts. The research found that of the 109 homework jobs in the sample, only 27 received rates of pay equivalent to the minimum wage or higher, with 69 jobs paying less than Ł3 per hour (NGH, 2001). Underpayment was more common for homeworkers from ethnic minorities: only one of the 37 homeworkers in the study who described their ethnic origin as other than White earned the minimum wage. While the average hourly rate of pay for White workers was Ł2.93, the average hourly rate of pay for non-White workers was Ł2.14. In its evidence, the Low Pay Unit reported that it has seen underpayment cases where workers, particularly homeworkers, have been told they are self-employed or volunteers. Homeworkers Campaign for Change also told us some homeworkers have been forced to become self-employed, thereby losing entitlement to the minimum wage.

4.22 During consultation for our second report, we were told that non-compliance frequently existed in companies operating at the edges of the legitimate labour market and particularly in the informal economy. In evidence for this report, the Knitwear, Footwear and Apparel Trades Union reported that workers in textile and clothing manufacturing 'sweatshops' in Leicester 'have told us of ... receiving wage rates of around Ł2 per hour. ... Many of these companies operate on the boundaries of the law ... counterfeiting [of branded clothing is] not uncommon.' In cases of minimum wage underpayment reported to Yorkshire & Humberside Low Pay Unit, some of the employers 'are "scraping by" wholly or largely in the informal economy'. We noted that the Marketing Director of the OCS Group wrote to the Financial Times (7 March 2001) that 'many companies do not pay the minimum wage or NI, in the knowledge that the chances of getting caught are minimal'.

The Northern Ireland Association of Citizens Advice Bureaux told us of an employer who had told a worker that if he paid the National Minimum Wage to her he would have to pay it to everyone.

Low Pay Commission visit to Northern Ireland

4.23 Evidence which we received also indicates that non-compliance with the minimum wage can and does occur outside the informal economy. NACAB, for example, has reported cases of workers being paid less than the minimum wage who were working at local branches of national employers.

In January 2000 a CAB in Hampshire advised a 36-year-old female homeworker, married with two children and employed to trim rubber components. Since 1 April 1999 her employer had refused to pay her (and her 40 fellow workers) the NMW, with the result that she was owed a total of Ł2,400 in underpayments.

National Association of Citizens Advice Bureaux evidence

4.24 In our second report we noted anecdotal evidence of collusion between employers and workers, especially in the informal economy. The same issue was raised with us in consultation for this report. The Cleaning and Support Services Association told us in oral evidence that the informal economy is an increasing threat to smaller employers in the sector, particularly in London, and that some people moonlighting on benefits are willing to take pay rates less than the minimum wage. The Inland Revenue told us that, when dealing with claims for Working Families' Tax Credit which indicated hourly pay below the minimum wage, it has found that some of the workers are content with the situation.

4.25 But in other cases workers have not been content to be underpaid. Some have made complaints of underpayment to the Inland Revenue. Research and evidence reported that others have not complained because of concern about losing their job or other detrimental action by the employer. For example, NACAB welcomes the enforcement mechanisms accompanying the minimum wage but sees it as 'evident that there are nevertheless some workers who, denied the NMW by their employer, feel unable to access the associated enforcement mechanisms for fear of detriment or dismissal'.

A CAB in Bedfordshire advised a 27-year-old man, shortly to become a father, who had recently received Ł100 cash-in-hand for a 58-hour week.

National Association of Citizens Advice Bureaux evidence

4.26 In our second report – after nine months' operation of the National Minimum Wage – our initial assessment was that the vast majority of employers were complying with the minimum wage. Eighteen months later, all the research which we have commissioned and the evidence which we have received suggest that this continues to be the case. Moreover, the number of complaints of underpayment being received by the Inland Revenue has decreased. But we should not be complacent. The fact that most employers comply is little comfort for those workers who are still not receiving the minimum wage. Some of these workers are employed in the informal economy, but by no means all. And although some workers are colluding with their employers, others are not. This non-compliance reaffirms the importance of the system established for enforcing the minimum wage, which we consider next.

Low Pay Commission Research

One woman worker said, 'When the minimum wage was introduced the employer gave everyone in the factory a form to fill in which stated that everyone was getting paid the minimum wage and that they only worked from 8.00 am to 4.00 pm. In fact, people used to work as late as 7 or 8.00 pm. ... One of the employers took her into a room and started shouting at her and ordered her to complete the form.'

Leicester City Council, 2001. The Impact of the Minimum Wage among Ethnic Minority Workers in Leicester

Enforcement

4.27 In our second report we said that the Inland Revenue had made a successful start to enforcement, adopting a proactive stance towards non-compliance. Government figures show that a cumulative total of Ł4.2 million of National Minimum Wage pay arrears due to workers had been identified by Inland Revenue enforcement officers up to March 2001 (Table 4.3). The Government's evidence noted that while there were fewer telephone calls and complaints to the Inland Revenue per month in 2000/01 than in 1999/2000, enforcement and penalty notices issued and total arrears uncovered since April 2000 have increased. The Government's evidence suggests this increase indicates that the enforcement teams are becoming more effective at targeting and recovering underpayments and that it may also show that enforcement action is beginning to reach deliberate non-compliers. We consider below what research and evidence shows about the effectiveness of the enforcement system, its accessibility, and the importance of proactive as well as reactive approaches to enforcement.

Effectiveness

4.28 We see it as significant and encouraging that while often making suggestions for improvement, a number of institutions submitting evidence comment on the enforcement system in a positive way. The view of the Low Pay Unit, for example, is that 'with its effective enforcement mechanism, early evidence shows a generally smooth and positive implementation'. NACAB welcomes the enforcement mechanisms accompanying the minimum wage, in particular the provision for the making and investigation of anonymous complaints to the minimum wage enforcement agency and for random, on-site inspections of employers. In general, the TUC considers 'that enforcement is proceeding reasonably well, although problems remain in some areas'. The CBI believes that 'the enforcement system is working effectively and well. Employers have reported that IR [Inland Revenue] officers have adopted a helpful attitude to enforcement. The current twin-track structure of enforcement, using both the IR and the Employment Tribunal system, has proved successful and should be maintained.'

Most employers want to see the nmw effectively enforced, since this prevents them from being undercut on wage costs by unscrupulous competitors.

CBI evidence

4.29 When we met NACAB North Region they told us that they regarded the new legislation enabling the exchange of information between Inland Revenue minimum wage enforcement staff and the rest of Inland Revenue as very welcome, but that there is nothing to deter employers from paying below the minimum wage and waiting to be visited by the Inland Revenue. Leicester City Council Welfare and Employment Rights Advisory Service thinks employers do not believe there is a real risk of their receiving a spot check visit. Inland Revenue told us that, among employers receiving enforcement notices, the majority pay up and others who appeal to tribunals pay up just before the hearing. Those who receive penalty notices also mostly pay up, and Inland Revenue takes further enforcement action against those who do not.

4.30 In our second report we suggested that the role of Inland Revenue should be kept under review because effective enforcement is key to compliance. From the evidence we have received, we see no need for any change to the existing mechanisms for enforcing the National Minimum Wage. But some non-compliant employers will inevitably be more difficult to deal with. The Government indicates in its evidence that it wants to ensure National Minimum Wage issues are dealt with as part of wider Government action in certain areas. We strongly agree that a joined-up approach to minimum wage enforcement is important. We are interested to see that the Government's joint informal economy teams, and the multi-agency approach tested successfully in the Fashion Industry Pilot in the London area, are being extended to other locations. Joint informal economy teams, which are integrated Customs & Excise and Inland Revenue teams, aim to increase levels of compliance in taxes and National Insurance and help ensure a level playing field for legitimate business. The Fashion Industry Pilot, which brings together eight departments and agencies led by Customs and Excise, has shown that by working together departments and agencies can provide a better service to business while reducing fraud. We strongly hope that the Government will make full use of initiatives such as these to tackle non-compliance with the National Minimum Wage.

The DTI and Inland Revenue have made great strides in providing enforcement through the NMW helpline, the new Tailored Interactive Guidance on Employment Rights (TIGER) and the targeted spot inspections by enforcement teams.

UNISON evidence

4.31 In our second report we also said there might be lessons to learn from the United States, where the enforcement body was working with leading firms in the clothing industry to put pressure on employers who violated the minimum wage. We suggested that in the medium term the Government could consider the Inland Revenue working in partnership with employer and worker organisations to enforce compliance on a sectoral basis. The Government's response confirmed that it agrees in principle and that the Department of Trade and Industry and the Inland Revenue would look at the scope for doing more in terms of communications between local organisations and regional compliance teams.

The introduction of the minimum wage has gone relatively smoothly, and this in part is due to the fact that there have been clear systems for workers to get advice and help. … Once an employer has refused or has proved difficult then it has been relatively simple for a worker to contact the Minimum Wage Helpline and for the Inland Revenue compliance mechanisms to then take over.

Greater Manchester Low Pay Unit evidence

4.32 The TUC indicates in its evidence that 'significant progress has been made in discussions with the Inland Revenue about the contribution that unions can make to the process and this work must continue'. We welcome the discussions between the Inland Revenue, TUC and individual trade unions which have been held so far. We continue to believe that the sectoral approach to enforcement which we suggested in our second report offers significant potential. As we noted in that report, responsible employers are concerned that they should not be undercut by those who exploit cheap labour.

Accessibility

4.33 In our second report we suggested there were further practical steps which might be taken to increase compliance by improving enforcement procedures. We recommended that the Government should fund a small number of community-based pilot projects in areas where workers were likely to be at most risk of non-compliance. We hoped that these projects would enable local advice agencies and trade unions, working closely with the Inland Revenue, to reach into areas of the labour market where workers are most reluctant to report non-compliance. The aim would be to build workers' confidence in the effectiveness of enforcement procedures and thereby encourage greater levels of reporting of non-compliance.

4.34 We are pleased that the Government accepted our recommendation of pilot projects and the principle of local action in particular sectors. The Government described in its evidence how it was taking this forward and said that, where possible, local employers would also be involved in the projects. The Department of Trade and Industry has since told us that a range of projects is being developed. The first, a telephone hotline in Kingston Upon Hull, was established in March in partnership with the City Council, Hull Consortium (an employer group), Warren Group (a young people's group) and UNISON, for both employees and employers to report non-compliance with the minimum wage in the Hull area. The service is led by the City Council and is running for a year, backed by posters, leaflets and advertising on local radio. A number of complaints about underpayment of the minimum wage have already been received.

4.35 There are six more projects either underway or in the process of being developed.

In the West Midlands, in partnership with the West Midlands Low Pay Unit, a drop-in clinic has been established in Birmingham and there will be others in Coventry, Dudley, Sandwell, Telford and Wolverhampton. The minimum wage is also being publicised at various festivals, temples, mosques and shopping centres.
In Newcastle upon Tyne, in partnership with NACAB North Region and UNISON, a project includes weekly minimum wage advice clinics in Central Newcastle and Washington with Inland Revenue minimum wage staff, beginning at the end of June, together with a dedicated telephone line connecting all CABx in Tyne & Wear to the National Minimum Wage helpline in Newcastle.
In Leicester, in partnership with the Council and the Knitwear, Footwear and Apparel Trades Union, National Minimum Wage drop-in clinics will be set up in the Summer. The Government will also fund a full-time National Minimum Wage development officer and part-time administrator to help facilitate better enforcement of the minimum wage in the Leicester area.
In Bradford and the surrounding area, a project in partnership with the NGH has been established and a full-time officer, to be funded by the Government, is being recruited. The project will develop a national strategy for minimum wage enforcement in relation to homeworking and will include a targeted awareness/publicity campaign, a drop-in clinic with an Inland Revenue minimum wage officer on hand to provide advice, an Inland Revenue homeworking expert team across the UK, and dissemination of research and good practice to all Inland Revenue compliance teams and other homeworking groups.
In Scotland, in partnership with Citizens Advice Scotland, plans are being developed for minimum wage advice clinics in five locations, to open in the late Summer: Edinburgh, Aberdeen, Airdrie, Hamilton and Penicuik.
In Northern Ireland, in partnership with the Northern Ireland Association of Citizens Advice Bureaux, a helpline covering the whole of the Province will be established by the early Autumn and drop-in clinics are also being considered.

4.36 We welcome these pilot projects, and we will follow their progress with keen interest. A particularly encouraging aspect of the projects is the way in which the content of them is being developed through Government and external partners working together. The Government's evidence indicated it is optimistic that the projects will prove successful and play a significant role in increasing compliance. We fully share this optimism and we hope that ideas which prove successful will be replicated widely elsewhere.

Proactiveness

4.37 In our first report, we commented that there was clearly a role for proactive as well as reactive enforcement. Proactive enforcement needed to be carefully targeted, covering those organisations least likely to comply rather than simply those most easy to reach. The enforcement body would need both to react to complaints and to carry out targeted investigations as part of its work. In our second report we noted that the Inland Revenue had adopted a proactive stance towards non-compliance with the National Minimum Wage. The evidence we received for this report shows that this work continues to be seen as especially important for helping to build the deterrent against non-compliance and for tackling underpayment affecting workers who fear the consequences of making a complaint.

The CBI supports the Inland Revenue's development of a targeted strategy for enforcement, directing resources towards those sub-sectors, geographical areas and categories of workers in which non-compliance is likely to be highest.

CBI evidence

4.38 Those expressing support for proactive enforcement work include the TUC and the CBI. The TUC believes 'more "random" inspections would be an important tool in ensuring compliance and in building our knowledge about the extent of compliance'. The GMB would like to see enforcement action targeted at the clothing and textiles, security, hotel and catering sectors. In the Low Pay Unit's view 'there is a real need for the Revenue to be more proactive in enforcement: under the current system, the burden is on the worker to take the initiative in reporting underpayment and, as the evidence shows, many of the most vulnerable feel unable to do so'.

In general we feel that in mainstream employment payment of the NMW is now accepted and relatively easy to enforce. … Continuing and particular attention needs to be paid to workers from minority ethnic communities, particularly women.

Greater Manchester Low Pay Unit evidence

4.39 We recognise that priority needs to be given to reactive work: investigating complaints, information from third parties and claims for Working Families' Tax Credit which indicate that the hourly pay rate is below the minimum wage. We very much hope, however, that a proper balance will be maintained between the Inland Revenue's reactive work and proactive enforcement.

4.40 The impact of proactive enforcement of the National Minimum Wage will be significantly increased if successful investigations are widely publicised. In our first report we commented that enforcement must be effective and be seen to be effective. In our second report we noted that several organisations representing workers had argued for greater publicity of enforcement action. This issue has been raised with us again by, for example, the TUC, the Low Pay Unit and the Northern Ireland Association of Citizens Advice Bureaux.

More publicity for successful enforcement is particularly important. This will discourage 'cowboy' employers from underpaying and will encourage the underpaid to come forward.

TUC evidence

4.41 The Inland Revenue issues press releases to publicise cases won before tribunals, which are open to the public. Because enforcement and penalty notices are not public documents, however, rules of confidentiality prevent disclosure of specific details. But general details can be disclosed and publicised. An example was a press release issued by the Department of Trade and Industry in January 2001 which cited 'Ł140,000 in back pay for a group of homeworkers working for an industrial company on the south coast; over Ł100,000 for a group of Asian workers in London; and Ł80,000 for employees of a brewing company in the north west of England'. This received wide coverage and we think it was a very good example of the kind of publicity which can be achieved. We hope that the Government will give more publicity to successful enforcement action.

4.42 So far in this chapter we have considered the state of awareness of the National Minimum Wage, compliance and non-compliance, and developments in enforcement of payment of the minimum wage. There is another important aspect to compliance with minimum wage legislation: the right of a worker not to be dismissed or victimised because they try to ensure they are paid the minimum wage or because they are, or are going to become, eligible for the minimum wage.

Detriment and Dismissal

4.43 In our second report we said that a frequently reported response to the National Minimum Wage by employers was unilateral reduction in workers' hours by the employer. Other action reported to us included consolidation of allowances or similar payments into the basic wage and loss of paid breaks. We noted that where these actions were taken by agreement, they were legal means of coping with the new legislation. There were instances reported to us, however, where reductions in terms and conditions had been introduced unilaterally by employers in contravention of National Minimum Wage legislation. Research and evidence which we have received for this report suggest that some workers have continued to experience detriment and dismissal related to the minimum wage.

Low Pay Commission Research

AEKTA – an employment rights advice agency for clothing workers – said 'for low paid workers the risk of losing their job is more important than getting the NMW. ... Workers are afraid to take any action or they have lost their job already. They no longer have access to their pay records, and often do not get pay slips. They do not know how to complain, and they feel threatened with intimidation by their employer.'

West Midlands Low Pay Unit, 2001. National Minimum Wage: Compliance and Enforcement

4.44 UNISON, for example, reported that action taken by employers has included unilateral reduction of sick and holiday pay and unilateral reduction or elimination of paid breaks. The GMB has found that 'cases persist where complaints [of minimum wage underpayment] have led to dismissal'. NACAB has had cases where clients have been dismissed after asking to be paid the minimum wage, and the Northern Ireland Association of Citizens Advice Bureaux reported cases of actual or threatened dismissal. Leicester City Council reported that Asian piece-workers (10 workers in the sample of 54) have found their piece rates were unilaterally cut or fluctuated, and none reached the equivalent of the minimum wage (Leicester City Council, 2001).

4.45 A worker who has been dismissed or experienced detriment for trying to ensure they are paid the minimum wage or because of eligibility for the minimum wage can apply to an employment tribunal. Figures from the Employment Tribunal Service show that 1,219 and 852 applications which related to the National Minimum Wage jurisdiction were made to employment tribunals during April 1999/March 2000 and April 2000/March 2001 respectively. Some of these cases are likely to have been concerned with detriment or dismissal related to the minimum wage rather than to underpayment, but information on the breakdown is not collected.

4.46 Some evidence has suggested that workers experiencing detriment related to the minimum wage have not sought redress. UNISON, for example, considers that 'the dominant problem arising from the implementation of the NMW is that of workers suffering detriment. ... Even where there is a union to represent them, many workers are too intimidated to challenge their employer on minimum wage violations.' We also received evidence that fear of detriment or dismissal has deterred workers who were being underpaid from complaining about the underpayment. The Low Pay Unit has found that numerous workers say 'that they do not want to "rock the boat" or endanger their job'. The NGH reported that 'many homeworkers are reluctant to try to enforce their entitlement to the NMW either through a, usually well-founded, fear of losing their work or through a lack of confidence that they will financially benefit from doing so'. UNISON believes 'the basic problem remains that enforcement of the NMW is largely complaints based, and the responsibility ultimately rests on the individual worker to initiate the enforcement process against their own employer'.

Low Pay Commission Research

One homeworker commented, 'I think the NMW is only for factory workers who are working 9.00am to 5.00pm and they have a permanent job. Our supplier has many choices. He can contact other new homeworkers. They are more willing to do homework at a cheaper rate. So, there is nothing we can do. We are living with the policy that something is better than nothing.'

National Group on Homeworking, 2001. Monitoring the Impact of the National Minimum Wage on Homeworkers

4.47 The National Minimum Wage Helpline's language line operates in 30 languages but the Helpline told us it has received few calls from ethnic minority workers, even after the publicity campaign focusing on ethnic minority groups in Autumn 1999. Workers from ethnic minorities – already vulnerable to underpayment of the minimum wage – appear to continue to be particularly reluctant to complain. For example, Leicester City Council's research found that over half of the 54 ethnic minority workers surveyed would not complain for fear of losing their job and not finding another.

4.48 In our second report we commented that there might be scope for some simplification of the complaint procedures of the Inland Revenue and the Advisory, Conciliation and Arbitration Service (ACAS), possibly by instituting a single initial point of contact for all minimum wage-related complaints. Some evidence which we have received has returned to the subject of the Inland Revenue's remit. The Low Pay Unit 'feels it is essential that the Revenue broaden its remit to cover the changes to contracts that we have seen to be so widespread among our own client groups'. UNISON understands the structural difficulty in asking the Inland Revenue to pursue cases of detriment or related violations of other employment law and recommends that consideration be given to the establishment of one centralised body to enforce employment legislation, perhaps in the form of a labour inspectorate. Yorkshire & Humberside Low Pay Unit makes a similar suggestion.

4.49 We continue to have the reservations we expressed in our second report about broadening the role of the Inland Revenue. We continue to believe, however, that effective co-ordination between Inland Revenue National Minimum Wage officers and ACAS is very important in order to ensure that workers with problems related to the minimum wage receive a good service. We recommend that the Inland Revenue and ACAS continue to monitor service to customers at the boundary between the two organisations and examine the scope for action to strengthen it.

Low Pay Commission Research

One woman said 'complaining would not help, I would still lose my job. I have seen examples of three women who complained – they were all told to leave.'

Leicester City Council, 2001. The Impact of the Minimum Wage Among Ethnic Minority Workers in Leicester

Conclusion

4.50 All the information we have received indicates that the vast majority of employers are complying with the National Minimum Wage. Overall awareness of the existence of the minimum wage is very high and the enforcement system is generally working well. This is not a basis for complacency, however, for some workers continue to be underpaid. A number of pilot projects are underway to promote reporting of non-compliance. We suggest, in addition, that more publicity should be given to the headline rate of the minimum wage, the enforcement service and successful enforcement action; the Government should use other compliance initiatives fully to tackle non-compliance with the minimum wage; the Inland Revenue should continue to carry out proactive enforcement work; and there should be closer co-ordination between the Inland Revenue and ACAS. We believe that together these measures will increase the effectiveness of enforcement action in tackling the non-compliance which still affects some workers.

4.51 In this chapter we have reported on evidence that some employers are continuing to deny their workers the minimum wage. We have also been alert to the possibility that other employers, or workers, may encounter genuine difficulty in the operation of the minimum wage, and this is the subject of the next chapter.