One in four workers aged over 25 who earned the legal minimum wage were underpaid last year, according to new research published by Resolution Foundation.
The think tank has called for stronger enforcement of the minimum wage as well as fines for those underpaying too low.
New research noted the success of the UK’s legal minimum wage over the last 20 years – revealing that combined higher wages for low-paid workers with reported ‘minimum wage non-compliance’ had fallen consistently between 1999 and 2015.
Resolution Foundation has revealed, however, that non-compliance has been increasing since the introduction of the National Living Wage in 2016.
Approximately one in five workers aged over 25 and earning around the legal minimum were reportedly underpaid in 2016 – with the figure rising to one-quarter of workers last year.
Resolution Foundation senior policy analyst, Lindsay Judge, 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.”
With the minimum wage set to rise twice as fast as average earnings over the next parliament, according to the research, and the number of workers covered set to more than double, Resolution Foundation suggested firms’ economic incentives to comply with the minimum wage requires more attention.
The research indicated most firms want to pay the minimum wage, but that fines are the main deterrent for the minority that do break the law.
The think tank argued that while HMRC is catching more non-compliant firms – identifying a record 1,456 firms in 2018/19 – as well as issuing greater fines – it levied a record £14.1m of penalties in 2017/18 – the economic incentives for firms to comply with the law are ‘still too low.’
“The introduction of a new single enforcement body for labour market rules offers the perfect opportunity to toughen up the law,” Judge added.
“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.”
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