19 September 2017

One in five minimum wage workers are potentially being illegally underpaid, the Low Pay Commission (LPC) has revealed.

In its latest report, released on Sunday, the government agency warned that as many as 305,000 to 580,000 workers aged 25 and over may currently be receiving a lower wage than they are legally entitled to.

Underpayment is of greatest concern immediately following an uprating in the minimum wage, the Commission said, but warned that the true extent of the practice is difficult to measure and that "the worst cases of exploitation of workers are almost certainly hidden".

But recent pushes to identify law breakers have revealed a significant issue among employers, with 98,000 workers found to be underpaid by a total of £10.9 million in 2016/17 compared with 26,300 workers underpaid by £3.3 million in 2014/15.

And it seems the problem is widespread across professions, as the LPC reported that 31% of underpaid workers are not in traditionally low-paying occupations, noting that this can make it difficult for the government to target their enforcement strategies.

The agency added that the majority of underpaid workers are female, part-time and hourly paid, with women accounting for two-thirds of those receiving below the legal minimum, but a lower proportion of women make a complaint. The LPC recommended that the government move to a proactive rather than reactive approach to enforcing the law as a result.

Additionally, salaried workers (who are paid monthly rather than hourly) are disproportionately underpaid, accounting for 11% of those paid at National Living Wage by 44% of those paid below it.

Chair of the Low Pay Commission Bryan Sanderson commented: "There is ... little point in having a minimum wage if workers do not receive the correct rate," adding: "...there is more the Government could do to identify non-compliance and stop it happening in the first place".

The recommendations of the LPC included raising awareness of minimum wage rates, improving guidance for employers, extending the government's name and shame policy, and including a tick box on payroll software for the employer to confirm that the minimum wage has been adhered to as a way to prompt monitoring.

While the Institute of Employment Rights agrees with the LPC that increased proactive enforcement is required to ensure employers stay within the law, we warn that increased awareness is not enough.

In our Manifesto for Labour Law, we propose the establishment an independent Labour Inspectorate to conduct both proactive and reactive checks on the workplace. Inspectors would have the power to issue enforcement notices to employers and to impose criminal sanctions for the worst cases.

Read more about this and our other proposals in our Manifesto for Labour Law