Why does the UK have a problem with pay?

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NMW isn't £6.96 per hour


Read More Stephen Blake
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Under-payment of wages is a growing problem, so government and employers must take a stand

On 1 October all workers aged 21 to 24 received a pay rise, with the National Minimum Wage (NMW) rate rising from £6.70 per hour to £6.95 per hour.

This being slated as the largest increase since 2008, outstripping average wage growth and inflation, will have been music to many politicians’ ears – not least to now former-chancellor George Osborne’s, who declared “Britain deserves a pay rise and Britain is getting a pay rise” when he introduced the new living wage, for over 25s, this time last year.

The National Living Wage, which applies to those aged 25 and over and was introduced in April this year, is £7.20 per hour. The NMW starts at £3.40 for apprentices, rising to £4 for employees under 18, £5.55 for 18- to 20-year-olds and £6.95 for 21- to 24-year-olds.

Yet for all the encouraging rhetoric, it seems the UK has a problem with pay. A number of media reports in recent months have called out high-profile employers, including Sports Direct and Hermes, accusing them of not paying the NMW. Tesco’s former car wash contractor Wave Car Wash was found to be paying a shocking £3.63 per hour.

So is underpayment really a growing problem? The fact that since 2013 the government has published the names of 687 employers failing to pay the NMW suggests it might be.

Head of policy research at Citizens Advice Kayley Hignell says the organisation has seen a 13% increase in NMW cases over the past six months, compared with the same period last year. “In many cases it is not simply about the hourly rate someone is paid but issues around travel time or pay on commission,” she says, adding that often people aren’t sure of their employment status and whether that entitles them to the NMW: “Over recent years changes in the labour market, and the rise of the gig economy, mean it is often more complicated to determine whether you are a worker or self-employed.”

Uncertainty around worker status due to changes in the labour market is something the government has made encouraging noises about tackling. Theresa May has announced a review into workers’ rights, with the aim of creating new laws to protect the nation’s growing army of self-employed and temporary workers.

The latest statistics show that this number now totals more than six million: 4.8 million self-employed, 1.7 million in temporary work, and 900,000 on zero-hours contracts.

Self-employed people in the UK do not, by law, have to be paid the NMW or NLW, which can leave them open to exploitation. This is particularly the case when employers claim to meet national standards but then deduct money for things like travel time or security checks, which is legal for self-employed staff but illegal for workers /employees.

“We hear of people in hospitality having huge amounts taken from their wages for rent, or tips included in their pay. Or care workers having reductions because allowances have been calculated in,” says Alan Price, chief executive of employment law at Croner Group.

“Employers simply shouldn’t be deducting these things but they are getting it wrong. It can be unclear for an employer let alone for an employee, and if they are a variable hours part-time worker who doesn’t work on a fixed basis problems arise.”

He points out that, with much of the UK economy made up of SMEs and micro-businesses, a lot of instances arise because firms have unwittingly fallen foul of – rather than knowingly manipulated – the rules. “Some of these firms, who can’t afford a separate payroll function, will literally have a spreadsheet. Without a book keeper, software, HR provider or a good accountant things are going to go awry,” he says.

Though high-profile cases have undoubtedly encouraged some workers to check their contracts and payslips, the majority won’t make a claim, says Price. “The challenge people face is if they blow the whistle they will have to pay a lot to make a claim, and they may or may not get it back at tribunal. People just don’t have the funds or the job security,” he explains.

With the huge costs involved in bringing a claim and the revelation that only three out of the 700 firms found to have been paying below the NMW over the last three years have been prosecuted, it seems employers are getting away with it.

It’s clear that some form of stronger action from government and business is needed. A good starting point, according to Citizens Advice, would be to reduce employment tribunal fees, which rose to up to £1,200 in 2013. It’s also calling for a Fair Work Authority to replace the “range of bodies” currently tasked with employment rights enforcement.

“This would target rogue employers proactively and be more effective at rooting out the worst offenders. It would also mean employers who are unsure about their responsibilities have a one-stop shop where they could check they are abiding by the latest rules on health and safety, holiday pay and the minimum wage,” Hignell adds.

In April this year the fine for employers that fail to pay the national minimum wage increased from £5,000 to £20,000, which Price says has certainly made a lot of organisations sit up and take notice.

But while she agrees that financial penalties are effective, HRD at construction firm SIG Linda Kennedy McCarthy says the government must do more to encourage ethical best practice.

“I can understand why the government has gone down that route but I would like to see it build on that by offering practical help and advice. How it can actually make it an easier thing to adhere to, how it can encourage best practice, not just the bare minimum,” she says.

SIG pays the National Living Wage to its workers as a minimum, and Kennedy-McCarthy says that paying people equitably attracts and retains better people. She is hopeful that the logic of treating employees fairly being good for business will win out. “We have stringent controls around what is being deducted and what’s not and we are confident we are paying fairly. Paying that much more is beneficial to us in terms of retention, motivation and engagement,” she says.

HRD at hospitality group Arora Anne Davey echoes this point. “The engine room of our hotels is our team members. Their service allows us to charge the rates and attract customers and get them returning time after time,” she says. The company also pays all workers the National Living Wage, which she says boosts engagement and retention.

She adds: “It’s not just about the money, it’s about the environment and the way they are treated as well. It’s the whole package.”

Davey welcomes the government’s workers’ rights review, and says with so much information available from so many sources there should be no excuse for employers failing their staff. “This is law and we must strive to give more,” she says.

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