Low-paid workers can become ‘trapped’ in cycles of minimum wage underpayment if they remain with the same employer from year to year, the Low Pay Commission has said.
Although the number of people who are paid less than the legal minimum has fallen since April 2019, the LPC’s 2023 report into compliance and enforcement of the national minimum wage (NMW) says that 334,000 people were still underpaid in April 2022 – equivalent to more one in five workers covered by the NMW.
However, as the LPC’s data was collected from employer surveys and is unlikely to include deliberate or more serious forms of NMW non-compliance, the number of people paid less than the legal minimum is likely to be higher.
Using data from the Annual Survey of Hours and Earnings (ASHE) covering 2012-2019, the LPC finds that one in three workers who are underpaid in a given year are still underpaid the next year.
Minimum wage underpayment
National minimum wage: don’t fall into non-compliance
More than 200 employers failed to pay minimum wage
‘Good work agreements’ needed to tackle low pay and poor conditions
It suggests that by moving jobs workers can escape underpayment, as those who stay in the same job from year to year are much more likely to remain “stuck” in situations where they are paid less than they are entitled to.
However, it acknowledges that lower-paid workers are more likely than the average employee to travel to work on foot or by bus, and poor transport links can restrict the jobs accessible to them.
The report has been published as the LPC prepares to present evidence to the government to help it decide what should happen to the national living wage after 2024.
The NLW, the minimum hourly rate for those aged 23 and over, is on target to reach two-thirds of median earnings by 2024 and is currently projected to be set at £11.16 an hour.
The LPC will make its recommendations on NLW and NMW rates from April 2024 by the end of October.
LPC chair Bryan Sanderson said: “We are entering a crucial period for the national minimum wage, with major decisions impending over the policy’s future trajectory. It is important to remind ourselves that the minimum wage is only truly effective in protecting living standards if it is enforced. This is a necessity not only for the employees but to ensure that the great majority of employers who are managing through difficult times are protected from unfair competition.
“In addition, enforcement of one right does not exist in a vacuum, but is connected to conditions in the workplace and workers’ confidence in the labour market. A truly comprehensive strategy would go beyond enforcement to consider labour mobility and the provision of means by which employee rights can be more effectively asserted.”
The LPC recommended that the government increase the regularity of its naming and shaming rounds, as well as expand the data HMRC collects on its caseload, including whether underpayment is formal or informal, the characteristics of underpaid workers and the working arrangements of underpaid workers.
Very few workers report NMW underpayment, with HMRC receiving just 3,000 reports about suspected underpayment each year.
To improve enforcement of the NMW, the report suggests more people need to come forward to highlight suspected underpayment, as HMRC is more likely to achieve a successful outcome in complaint-driven cases.
The report says: “A closer working relationship with third parties – in particular, social partners among employer and worker representatives – seems an appropriate and productive way to do this. The response to our recommendations last year on third-party complaints shows a reluctance on the part of the government to think creatively about how to achieve this.
“Even if this were achieved, the volume of cases and the time taken to settle each case impose a bottleneck on enforcement activity. We need to know more about whether resource is being targeted effectively – and to do this, we would need better data to be collected and made available by HMRC, which should enable a proper comparison with the ASHE underpayment figures.”
It says a successful strategy to address NMW non-compliance would involve going beyond enforcement and thinking more about workers’ power, mobility and willingness to assert their rights.
“In the context of our post-2024 work, we need to think about the factors associated with non-compliance. This could be sectoral; in the context of specific employment arrangements (e.g. salaried work); or linked to wider questions about workplace conditions and rights,” the report says.
“We will also look in depth at the factors affecting workers’ mobility and the nature and extent of monopsony in the UK labour market.”
Sign up to our weekly round-up of HR news and guidance
Receive the Personnel Today Direct e-newsletter every Wednesday
Reward, compensation and benefits opportunities
Browse all comp and benefits jobs
