Penny pinching: enforcement (or not) of the minimum wage

“A penny saved is a penny earned.”

So said the 18th century clever clogs, Benjamin Franklin. Allegedly. Maybe.

OK, it seems he probably didn’t say it. But, if he did, we could justly consider Franklin to be an astonishingly far-sighted commentator on enforcement of the national minimum wage in 21st century Britain. Because, for some of the country’s biggest and most profitable employers, cutting corners on compliance with the national minimum wage is a business model that pays – penny upon penny upon penny.

Last week, the Department for Business, Energy and Industrial Strategy (BEIS) named & shamed another tranche of employers found by HMRC to have breached the minimum wage – the 14th round of naming & shaming since the scheme was rebooted in 2013. In this round, 179 employers were named for collectively owing £1,096,246 to 9,123 workers.

As ever, press and media attention focused on the handful of household names among the 179, including the restaurant chains Wagamama, which was found to owe £133,212 to 2,630 workers, and TGI Fridays, which owed £59,348 to 2,302 workers. Yet, as ever, most of the 179 were (relatively) small-fry: 146 (82%) owed less than £5,000, 110 owed less than £2,000, 105 had underpaid fewer than five workers, and 56 had underpaid only one worker. Just five (including Wagamama, TGI Fridays and Marriott Hotels) accounted for 34% of the arrears owed, and for 60% of the 9,123 underpaid workers. The median arrears owed was just £1,356, and the median number of underpaid workers was three.

But my eye was drawn to the statement by BEIS minister Andrew Griffiths:

There are no excuses for short-changing workers. This is an absolute red line for this government and employers who cross it will get caught – not only are they forced to pay back every penny but they are also fined up to 200% of [the] wages owed.

Because, as Mr Griffiths knows very well, that is simply not true. Indeed, the naughty little minister manages to squeeze not one but two pork pies into his statement of just 46 words. Which is pretty impressive, even for a government minister.

Firstly – as noted on this blog a few weeks ago – not “every penny” of the £1,096,246 of arrears ‘identified’ by HMRC in this round of naming & shaming will end up in the pockets of the workers from whom it was thieved. Because we know that, each and every year, a significant – but unknown – proportion of the arrears ‘identified’ by HMRC are not paid back. And BEIS is seemingly so unbothered by this troublesome fact that it can’t even say how money much does reach the workers in question, or how many workers receive all the unpaid wages thieved from them by their short-changing employer.

Secondly – as also noted, somewhat tediously, on this blog – the worst offenders, in terms of total arrears owed and workers underpaid, are not fined for some or even most of the wages owed. Because much of the arrears ‘identified’ by HMRC enforcement are in fact identified not by HMRC but by employers themselves, under a self-correction mechanism quietly introduced by BEIS and HMRC in 2015. And, not only are those employers not named and shamed by BEIS for those self-corrected arrears, but no financial penalties are imposed in respect those self-corrected arrears. Which means the employers in question have enjoyed an interest-free loan equal to those arrears, which they may or may not repay in full. And a lot of pennies saved is a lot of pennies earned.

So, in January, Mr Griffiths confirmed – in his Answer to a Parliamentary Question by Caroline Lucas MP – that, of the 1,049 employers named by BEIS in the August 2016, February 2017, August 2017 and December 2017 naming rounds, for collectively owing £5.2 million to 47,336 workers, 169 were instructed by HMRC to self-correct additional arrears, for which they were not named, totaling £4.1 million and owed to 71,766 workers. And, far from the 169 employers being ‘fined up to 200%’ of those self-corrected arrears, no financial penalties at all were imposed in relation to that £4.1 million. Which is a fuck of a lot of pennies saved. Or earned. Up to 820 million pennies, in fact.

Furthermore, in recent weeks, a series of Parliamentary Questions tabled by Jo Swinson MP have revealed that, of those 169 self-correcting employers:

In short, the 169 self-correcting employers include the very worst offenders.

All of which somewhat undermines the transparency and credibility of the naming & shaming scheme. Not to mention the credibility of Mr Griffiths.

So, it’s good to see a cross-party group of more than 40 MPs, led by Caroline Lucas and Jo Swinson, calling for a review of policy on both the naming & shaming of non-compliant employers and the self-correction of arrears. Why not ask your MP to add their name, if they haven’t already?

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About wonkypolicywonk

@wonkypolicywonk is a policy minion who has been lucky enough to work at Maternity Action, Working Families, Citizens Advice, the National Audit Office, the Law Society, and Amnesty International UK. He currently bangs his head on a desk in Parliament.
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