Employers that do not pay employees the national minimum wage will face an increased penalty of up to £20,000.
The government is to increase the financial penalty percentage from 50% to 100% of the unpaid wages owed to workers found to be underpaid, plus the penalty fine of up to £20,000.
Currently, employers that break the law must pay the unpaid wages plus a financial penalty calculated as 50% of the total underpayment for employees underpaid. The maximum penalty fine is currently capped at £5,000.
Regulations introducing these new limits are subject to Parliamentary approval and are expected to come into force in February.
The national minimum wage of £6.31 for staff aged 21 and over is also expected to be increased in October, to be in line with the cost of living.
The government is also looking at bringing legislation at the earliest possible opportunity, so that the maximum £20,000 fine can apply to each employee that is underpaid.
Vince Cable, business secretary, said: “Anyone entitled to the national minimum wage should receive it. Paying anything less than this is unacceptable, illegal and will be punished by law.
“We are bringing in tougher financial penalties to crackdown on those which do not play by the rules. The message is clear, if you break the law, you will face action.
“As well as higher penalties, we have made it easier to name and shame employers which fail to pay their workers what they are due. We are working with HM Revenue and Customs to investigate non-compliance and facilitate prosecutions in most serious of cases.”
Steve Turner, assistant general secretary at trade union Unite, added: “Raising the maximum fine to £20,000 is simply not enough of a deterrent for employers which are making big profits by exploiting workers.
“The £20,000 proposal per employee proposal is only for each employee underpaid by £20,000, to put in perspective, an employee will have had to be unpaid and working 40 hours a week for over 18 months for this to kick in.”