National Minimum Wage

Chapter 4: Compliance and Operation of the National Minimum Wage
4.99 We have previously raised concerns about the extent
to which enforcement activity has tackled those in the
“Have you heard of anyone
informal economy who pay less than the minimum being inspected? I’ve heard of
wage. We recognise that this requires extra effort and two restaurants being targeted
resource. For this report, we commissioned Ipsos in terms of illegal working, but
MORI and Community Links (2012) to undertake nothing about non-compliance
research into non-compliance and the informal
with the NMW.”
economy, by talking to relevant employers. They
found that some informal employers thought the Interviewee, Ipsos MORI and
minimum wage was just a guideline (and it was not
Community Links research,
2012
strictly enforced) or that employers were not paying it
because they felt their businesses could not afford it.
Some employers thought there were those who should not be paid the minimum wage, for
example students and those doing casual work to supplement income from a first job. Many
employers included in the research told the researchers that their businesses were variable
and therefore they needed flexibility in the wages they paid. Some paid a percentage of profit
to employees.
4.100 The research found that there were different tactics used to evade detection, for example
keeping two sets of books or using an accountant who would falsify records. In general, the
employers felt that the benefits of non-compliance outweighed the risks. It was reported that
they felt that the lack of evidence (such as failure to provide detailed records) meant that
HMRC would not have enough evidence to convict them of any illegality.
4.101 In written evidence, the UKFT said there was still significant evidence that some employers
were managing to avoid paying the minimum wage by running two sets of books, one
showing the correct number of hours worked, the other showing working hours
corresponding to payment of the minimum wage. It said this needed further policing.
4.102 In its evidence, the Government has provided information on what it is doing to tackle noncompliance
in the hidden economy. The Dynamic Response Team has been operating closely
with other parts of HMRC, along with other enforcement bodies (including the GLA, UKBA,
and the police) and undertaking a number of unannounced sweeps of businesses suspected
of operating in the informal economy in major cities. For example, operations have taken
place in London, Leicester and Exeter and have found a number of cases of non-payment of
the minimum wage.
Enforcement Statistics
4.103 The Government publishes statistics annually on the results of the enforcement activities of
HMRC over the financial year. In 2010/11, the total number of enquiries completed (and the
number of cases of non-compliance) decreased on the previous year. There was, however, an
increase in the strike rate (the percentage of cases investigated where non-compliance was
found) from 34 per cent in 2009/10 to 39 per cent in 2010/11.
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