Only 13% of the businesses paying less than the minimum wage were caught in 2018-19.
Research from the Resolution Foundation think tank, Under the wage floor, found that non-compliance in paying the minimum wage has been steadily increasing since the introduction in 2016 of the National Living Wage (NLW).
Back in 2016, approximately one in five workers aged 25 and over were paid below the legal minimum wage in 2016; however, this increased to one in four in 2019, with approximately 365,000 people underpaid.
It is estimated that 11,000 businesses failed to pay minimum wage to its staff in 2018-19; however, of that figure, only 1,456 were caught by government inspectors, and with the wage set to increase in April, there is concern that even more organisations will be tempted to break the rules.
Because the wage is set to increased twice as fast as average earnings over the next parliament, the number of workers covered will more than double; the Foundation said that the companies’ economic incentives to comply need to be in the spotlight.
The think tank’s findings revealed that the majority of businesses want to comply and pay, but that fines are the main deterrent for the minority that do break the law.
Although the 1,456 firms caught is more than ever before, the economic incentives to comply with the law are still seen as far too low.
Lindsay Judge, Senior Policy Analyst at the Resolution Foundation, said HMRC must “take a tougher line” with offenders.
“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.
“The introduction of a new single enforcement body for labour market rules offers the perfect opportunity to toughen up the law.
“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 offenders, and being given the power to levy larger financial penalties.”