Minimum wage underpayment growing

Employee underpayment is rising and fines for those underpaying are low, according to research by the Resolution Foundation

Its report, Under the wage floor, states that minimum wage non-compliance fell consistently between 1999 and 2015.

However, since the introduction of the National Living Wage (NLW) in 2016 non-compliance has been increasing.

In 2016 around one in five (20%) workers aged 25 and over earning the NLW were reportedly underpaid. In 2019 this figure rose to more than one in four (26%) workers.

According to Under the wage floor HMRC is catching more non-compliant companies, identifying a record 1,456 organisations between 2018 and 2019.

HMRC is also reportedly issuing higher fines, charging a record £14.1 million in penalties between 2017 and 2018.

While HMRC has the power to levy penalties worth up to 200% of a person’s wage for non-compliance, the report notes that issuing arrears-only demands and early repayment discounts meant that the average penalty in 2017 to 2018 was worth around 90% of the wage arrears owed.

Lindsay Judge, senior policy analyst at the Resolution Foundation, said: “The minimum wage has been one of the UK’s biggest policy successes in recent decades, delivering much-needed pay rises to millions of low-paid workers. Its success is dependent on employers taking it seriously, with those firms paying it not being undercut by a minority that fail to do so.

“The welcome introduction of the National Living Wage in 2016 has led to a worrying rise in minimum wage underpayment. As the government plans to increase the legal wage floor through this parliament it is essential to strengthen the incentives for firms to comply," she added.

“The introduction of a new single enforcement body for labour market rules offers the perfect opportunity to toughen up the law. But while that may take years to get up and running, the government can act today by encouraging HMRC to take a tougher line with minimum wage offenders and being given the power to levy larger financial penalties.”