LME recommends higher penalties for non-compliance of employee pay rights

Sir David Metcalf, director of labour market enforcement (LME), has released the first annual strategy report setting out his recommendations for improving state-led enforcement of employee rights.

In United Kingdom Labour Market Enforcement Strategy 2018/19, he suggests that employers should be subject to more regular prosecution and higher penalties for non-compliance.

According to data published by the Office for National Statistics (ONS), it is estimated that 342,000 jobs, 1.2% of all employee jobs, were paid below the National Living Wage (NLW) in 2017.

Research also suggests that total unpaid wages in 2016 amounted to £3.1 billion. Over half of this (£1.8 billion) is the result of unpaid holiday pay. £4.5 billion is thought to be misappropriated from agency workers annually, with £2.5 billion due to unpaid holiday pay.

Referrals to the National Referral Mechanism (NRM) have increased from 899 in the third quarter of 2016, to over 1,300 in the third quarter of 2017. Labour exploitation accounted for 48% of these referrals.

The report identifies key risk sectors for labour exploitation, which include agriculture, care, hospitality and construction.

Metcalf states that a compliance-focused approach is premised on the idea that many violations of employment regulations are made in error. He suggests that an effective solution would be to offer greater information, clarity, education and support from the various enforcement bodies.

To improve the deterrence approach, which tackles deliberate violations, Metcalf recommends raising the regularity of investigations and the scale of financial penalties. Currently, employer penalties for non-compliance to the National Minimum Wage (NMW) are, on average, around £110 per worker. Employer fines following NMW prosecution tend to sit below £5,000. Some employers are simply factoring these numbers in as part of their wider business models.

He notes that government expenditure on enforcement bodies has risen significantly, from approximately £25 million to £33 million over the last year. However, he states that the Employment Agency Standard (EAS) Inspectorate, which has nine inspectors covering an estimated 18,000 employment agencies, is under-resourced.

Metcalf feels that an increase in penalty fares might aid this effort to provide more funding to the EAS.

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The report identifies several gaps in the current processes for labour market enforcement. For example, Metcalf suggests that a state body be given the responsibility of regulating holiday pay. He also notes that, now that it is possible to prosecute the failure to keep adequate records as a standalone offence, Her Majesty’s Revenue and Customs (HMRC) should do so regularly.

Metcalf concludes: “Naturally, I am keen that those elements of this strategy that are accepted by the government are implemented in a timely fashion. I believe that¬†urgent action is needed to address problems and gaps in labour market enforcement. Some will¬†inevitably require legislation, and hence will take longer to implement, but others ought to be¬†simpler to take forward. I therefore intend to be proactive in working with the relevant government
departments and the three enforcement bodies in an effort to take these forward, such that I can¬†report on progress by the time of my next [report] in 2019.”