Compliance and Enforcement of the National Minimum Wage

The Low Pay Commission is an independent body that advises the government about the National Living Wage and the National Minimum Wage. In their work, they hear extensive evidence about compliance and enforcement with the minimum wage, and publish regular reports considering that evidence.

Their latest report, Compliance and enforcement of the National Minimum Wage, presents data on underpayment and explores the persistence of underpayment for individual workers.

Key Findings

The report found that:

1. Underpayment fell by around 100,000 between 2019 and 2022.
2. Underpayment as a share of coverage (the number of workers paid within 5 pence of a minimum wage rate) has barely moved, even as the labour market has grown significantly tighter.
3. By using data from the Annual Survey of Hours and Earnings (ASHE) covering 2012-2019, it was found that one in three workers who were underpaid in a given year were still underpaid the next year. Those workers staying in the same job were also much more likely to remain ‘stuck’ in underpayment.
4. The prevalence of insecure work makes job moves feel risky, and obstacles to changing jobs continue to weigh heavy in the mind of the low-paid workers.
5. Poor transport links restrict the jobs accessible to low-paid workers, and expensive fares eat into their earnings. There are also larger inefficiencies in the ways jobs are advertised and workers find out about vacancies; large employers are increasingly turning to sophisticated digital channels to recruit, but these are not available to every business.
6. Insecure employment leaves workers in a position of greater dependency on their employers and creates the conditions for exploitation.
7. Very few workers continue to report underpayment.

What does this mean for enforcement?

1. HMRC is tailoring its efforts to the scale and nature of the problem and takes seriously the need to test and learn from different approaches. But resources are limited, which has an inevitable effect on the deterrence effects perceived by employers.
2. In their targeted work, HMRC can use a broad-based risk model to strategically target their activity; in complaint-driven work, they abdicate this strategic control and respond to what comes in.
3. The Low Pay Commission desires to increase the pipeline of reports received and have a closer working relationship with third parties. However, the response to last year’s recommendations on third-party complaints shows a reluctance on the part of the Government to think creatively about how to achieve this.
4. The Low Pay Commission would need better data to be collected and made available by HMRC, which should enable a proper comparison with the ASHE underpayment figures.

Based on the key findings of the report, the Low Pay Commission give the following conclusions:

1. Give credit to HMRC for being conscious of the need to test and learn, to maximise effectiveness of its limited resource.
2. The Low Pay Commission does not have basic demographic data from HMRC’s own caseload. If there was access to this data, LPC could start to understand whether the underpayment being measured in official data sources is the same as the underpayment HMRC finds in their cases.
3. In the long term, the biggest wins are going to come from identifying and addressing the factors associated with vulnerability.
4. A truly comprehensive strategy would go beyond enforcement and think about workers’ power, their mobility and their willingness to assert rights.

Recommendations

As a result of the report and its key findings, and conclusions, Low Pay Commission are urging the Government to take forward the LPC’S 2018 recommendations on one-sided flexibility.

1. Ensure more regular naming rounds to create momentum and increase coverage.
2. Expand the data HMRC collects on its caseload, in particular:

• Whether underpayment is formal or informal.
• The characteristics of underpaid workers involved.
• The working arrangements of underpaid workers.