Study suggests that a substantial number of employees are paid under minimum wage

09 January 2020

Research conducted by the Resolution Foundation think tank highlights that a quarter of employees aged 25 and over are not receiving the minimum wage and are being paid below the amount required by law.

Findings have demonstrated that the practice in which firms do not comply with minimum wage requirements has become more widespread and has increased since the introduction of the National Living Wage in 2016.  Prior to this, roughly one in five workers aged 25 and over was underpaid but this has crept up to more than one in four.

A spokesperson for the government spoke to the BBC to confirm:

"All businesses, irrespective of size or business sector are responsible for paying the correct minimum wage to their staff. HMRC won't hesitate to take action to ensure that workers receive what they are legally entitled to.

 In 2018-19, HMRC completed over 3,000 investigations, identifying over £24.4m, the highest amount in a single year, for more than 220,000 workers.

 Consequences for not complying with paying National Minimum Wage can include fines of 200% of the arrears, and, for the worst offences, criminal prosecution."

 The contents of the research weren’t all as depressing, as it found that most firms actually want to pay the minimum wage, if not only due to the fines that can be imposed on them for non-compliance. The study – entitled – ‘Under the Wage Floor’ – asserts that the penalties are still not enough to deter some unscrupulous businesses from actively ignoring the law when it comes to the issue of paying minimum wage, and that the associated fines need to be increased significantly.

Experts have voiced their concern that the increase to the new minimum wage rates to be introduced in April 2020, which substantially exceed the rate of inflation, could lead to further non-compliance amongst some employers.

Lindsay Judge, senior policy analyst at the Resolution Foundation, commented

"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."

The rates to be applied from April 2020 are as follows:

  • 25 years old and over - £8.72
  • 21-24 years old - £7.70
  • 18-20 years old - £6.15
  • Under 18 - £4.35
  • Apprentices - £3.90

CIPP comment

The topic of National Minimum Wage and National Living Wage is very prevalent within contemporary society, and there is pressure on employers to act in an ethical manner, and to comply with the law. The penalties surrounding non-compliance in this area can be substantial. There may be scenarios where businesses believe that they are abiding by the law but where there is a lack of understanding which means that a process is bringing employee pay below the NMW or NLW. In recognition of this, the CIPP offers a day long training course to help payroll professionals with the complexities of observing NMW and NLW rates. The next course is scheduled to take place in Solihull on 26 February 2020, and you can enrol  here.

 


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