Minimum wage: cracks in the floor

The minimum wage is one of the fundamental employment rights in the UK. It was introduced in 1999 and was named the ‘most successful government policy of the past 30 years’ in a poll of 159 members of the Political Studies Association in 2010.

The level of the minimum wage has risen rapidly in the last few years, and as a result covers more jobs than ever before. But the minimum wage doesn’t enforce itself.  Effective action by authorities is needed to make sure workers are paid the minimum wage.

Investigations by HMRC discovered 98,150 workers who were paid less than the minimum wage in 2016/17. This was the largest total since records began in 2005/06, and 69% more than the year before. Even so, it is possible that the numbers found by HMRC only scratch the surface. The true extent of underpayment is very difficult to estimate, but a range of 1 to 2 million underpaid workers is likely, or between 4% and 9% of employees aged 25 and above. Here we look at what we know about this issue.

How many jobs are paid at the minimum wage?

As of April 2017 it is estimated that almost 2 million jobs are paid at the relevant minimum wage, 6.7% of all jobs in the UK. By 2020, 12.4% of jobs are expected to be paid at the minimum wage, or 3.4 million jobs.

Source: Low Pay Commission, via correspondence

The number of employees paid less than the minimum wage has increased too

HMRC discovered 98,150 workers who were paid less than the minimum wage in 2016/17. This was the largest total on record, and 69% more than the year before.

The large increase in the number of workers found to be underpaid in the last two years is thanks to an increase in the number of proactive, ‘targeted’ investigations conducted by HMRC (as opposed to investigations triggered by a worker complaint).

Source: BEIS/HMRC enforcement data

Common causes of underpayment of the minimum wage identified by HMRC include ‘failing to pay workers travelling between jobs, deducting money from pay for uniforms and not paying for overtime’.

How many people are underpaid in total?

HMRC can only afford to investigate a fraction of employers. To get a sense of the total number of people who might be underpaid, we must turn to estimates from official surveys on the earnings and hours of employees.

There is a lot of uncertainty around the total number of underpaid workers because surveys struggle to capture non-compliance with the minimum wage. It’s not possible to point to a specific figure with much confidence, but only to a broad range.

Excluding unpaid time, estimates suggest that underpayment affects between 300,000 and 580,000 people aged 25 and above.

Including unpaid time in the calculations is difficult and uncertain, but without it, estimates miss one of the common causes of underpayment. For example, salaried workers who routinely work more than their contracted hours, but without being paid overtime.

Taking unpaid time into account, the number of people underpaid the minimum wage is a lot higher. The true extent of underpayment is very difficult to estimate, but a range of 1 to 2 million underpaid workers is likely, or between 4% and 9% of employees aged 25 and above.

Source: Estimates by contracted hours are from the Low Pay Commission’s Non-compliance and enforcement of the National Minimum Wage (September 2017); estimates including unpaid time are the Library’s, based on analysis of the HOURPAY variable in the Labour Force Survey (LFS)

How to check whether pay and hours add up to the minimum wage

The Government’s minimum wage calculator is an easy way to check whether a worker is paid the minimum wage they are entitled to.

For example, a 26-year old on £20,000 a year who works 55-hour weeks without being paid for overtime is not getting the minimum wage:

Read more in our briefing paper on Workers underpaid the minimum wage.