David Metcalf: The £3.1 billion scandal of '˜wage theft' by employers

Sir David Metcalf, director of Labour Market Enforcement, lays out his plan to tackle '˜wage theft' that takes billions of pounds out of pay packets every year.

The hand car was sector has been identified as one particularly prone to labour abuse
The hand car was sector has been identified as one particularly prone to labour abuse

British workers suffered unpaid wages – or ‘wage theft’ to use the American term – estimated to be worth £3.1 billion in 2016. Or, to put it more starkly, more than six million of the lowest-paid workers in the country each lost out by £470 on average.

More than half of this was unpaid holiday pay, the precious days off that you’re entitled to, paid, that you’re not getting. That extra cash is lining the pockets of bad employers and it needs to stop. In my recently published strategy, I recommended government enforcement of holiday pay. No state body does this now – a serious gap in our compliance machinery – but I’m hopeful that it will happen, with ministers already consulting on how enforcement could work.

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Beyond this, my strategy sets out a series of recommendations to guide the work of the Government’s three labour market enforcement bodies: HM Revenue and Customs, which enforces the minimum wage; the Gangmasters and Labour Abuse Authority (GLAA), which licences gangmasters in horticulture and has police-style powers to deal with serious breaches of labour regulations; and the Employment Agency Standards Inspectorate (EAS), which monitors our 18,000 employment agencies.

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If accepted and taken forward by Government, these changes will help to protect workers and make sure businesses that are playing by the rules are not being undercut by unscrupulous employers breaking the law to get ahead.

Workers deserve to know their rights, so I am calling for more information: a written statement in week one of the job, the right to a payslip for all workers and clearer complaints channels when something goes wrong.

Official statistics show that some 25,000 workers in Scotland – and more than 360,000 across the UK as a whole – were paid below the national minimum/living wage in 2016. To combat this, we can cut down wage theft by hiking up fines for employers who don’t pay the minimum wage. The average firm in the UK will face a minimum wage investigation once every 500 years and fines are currently just twice the wage arrears. New data released by HMRC last week shows that this is only £156 per worker on average. This is clearly too low to act as a deterrent and as such I have recommended that the government reviews and increases financial penalties for rogue employers.

But reputational as well as financial penalties are effective too: naming and shaming law-breakers is already done with employers who underpay minimum wage rates to raise awareness about the law and encourage other employers to check that they are paying workers properly.

I visited business and government stakeholders in Scotland as part of my consultation last summer. These discussions were invaluable in helping me understand the nature of non-compliance in the labour market and what should be done about it. Clearly there are challenges ahead and my next strategy for 2019-20 will examine a range of issues in low-paid sectors identified as being at particular risk of labour abuse. Intelligence from the three enforcement bodies and elsewhere (for example, the police, NGOs etc) highlights non-compliance ranging from lower level infringements to high-harm labour exploitation across a number of sectors (more than 60 per cent of recent modern slavery referrals in Scotland were related to labour exploitation) – hand car washes, agriculture, care, nail bars, shellfish gathering, hospitality, construction and factories/warehousing.

Indeed I have already recommended local pilots for hand car washes and nail bars to see whether a licensing model is needed to improve compliance with labour laws in these sectors. Non-compliance in supply chains is also a major problem. I suggest three improvements here by linking the actions of suppliers down the supply chain to the big brand name at the top.

First, some form of joint responsibility to stop brand names from turning a blind eye to the exploitation of workers down the supply chain. I recommend that non-compliance in the supply chain should be addressed privately between the firm down the supply chain and the brand name. Failure to do so in a given time would result in the sanctioning of both the supplier and brand name (say a supermarket) and lead to public naming. I opted for this cooperative approach over the more legalistic joint and severable liability route used in some other countries as I want to encourage brands to work constructively with suppliers to address any problems that arise. I’m pleased my recommendation here has already

been endorsed by the Confederation of British Industry (CBI).

Second, I recommend a power to embargo “hot” goods supplied by a non-compliant subcontractor. This would have a major impact in the garment trade, for instance. The retailers will have a strong incentive to ensure their subcontractors are compliant otherwise their “fast fashion” models simply won’t work.

Third, public procurement contracts don’t explicitly state that labour regulations must be complied with. I believe that the public sector should take a lead here in ensuring that, in commissioning its own suppliers, it is doing all it can to ensure compliance with employment law. All of these recommendations are designed to build on the good work that HMRC, GLAA and EAS are already doing, so that workers get the rights they are entitled to and good businesses can prosper.

Professor Sir David Metcalf CBE is the first director of Labour Market Enforcement