Enforce For Good - Effectively Enforcing Labour Market Rights In The 2020s And Beyond

26th April 2023

A minimum wage, paid holiday from day one, safe working conditions and non-discrimination in the workplace are all basic standards that workers are entitled to in the UK today. But these rights are not worth the paper (or screen) they are written on if non-compliant employers are not identified and required to make good any wrongs.

Failing to enforce labour market rights undermines living standards by leaving workers short-changed, and allows low-margin firms to survive by giving them an unlawful edge over their compliant peers. As a result, effectively enforcing labour market rules is a crucial plank of any economic strategy that seeks to kickstart growth and reduce inequality to boot.

This report concludes a four-year work programme at the Resolution Foundation supported by Unbound Philanthropy exploring the what, why and how of labour market enforcement. Here, we bring all our findings of the last four years together with new evidence from five cross-country studies to show how we could do better in the UK when it comes to enforcing labour market rights.

We find that a sea change is required in enforcing labour market rights. The levels of a wide range of labour market violations are unacceptably high; low-paid, and other vulnerable workers who are the least able to assert their rights themselves, are at the sharp end of unlawful employer practice; our state enforcement system is incoherent and patchy; our ability to detect violations is limited; and our standard approach to non-compliance when it is uncovered is weak.

As policy makers strive to improve worker rights, they must reform not just the protections themselves, but our current labour market enforcement regime as well.

Key findings
Non-compliance with labour market law is widespread. Almost one-third (32 per cent) of workers paid at or around the wage floor were underpaid the minimum wage; 900,000 workers reported they had no paid holiday despite this being a day-one entitlement; and a staggering 1.8 million workers said they did not get a payslip, a right by law and an important tool in helping people check whether their pay is correct or not.

Low-paid workers are at the sharp end when it comes to labour market violations. We find that 14 per cent of the lowest-paid workers report that they receive no paid holiday, six-times higher than the highest-paid. Likewise, a worrying 11 per cent of low-paid workers say they do not have a payslip, twice as many as those in the highest-paid quintile.

The UK labour market enforcement system is highly fragmented, with six core bodies plus local authorities overseen and funded by seven different government departments. This piecemeal institutional set-up contrasts strikingly with practice in many other OECD countries - including the five we study in this report - where most if not all enforcement functions are frequently brought together into a single organisation.

The UK has just 0.29 labour market inspectors per 10,000 workers, meaning we are less than a third of the way to meeting the International Labour Organisation (ILO) minimum standard benchmark of one labour inspector per 10,000 workers. This leaves us ranking 27 out of 33 comparable OECD countries.

The presumption that firms want to ‘do the right thing' informs agencies' response when they uncover non-compliance. We show that in 2021-22, HMRC's National Minimum Wage (NMW) unit, the agency with some of the toughest civil penalties at its disposal, issued no penalty in the case of two-fifths (41 per cent) of arrears uncovered.

The enforcement agencies only use the more powerful sanctions they can impose in the most egregious cases. Since their introduction in 2017 to April 2002, only 84 Labour Market Enforcement Undertakings have been issued, and just four Labour Market Enforcement Orders. Likewise, there has been fewer than one criminal prosecution a year for NMW underpayment (18 employers since 2007).

Recommendations
Introduce a single enforcement body (SEB) that goes further than the Government's 2018 proposal and covers all worker rights unless reserved to another enforcement body.

Ensure that labour market enforcement is a true social partnership by giving worker and firm representatives a place on the board of the new SEB.

Following the model of the Competition and Markets Authority (CMA), empower worker and firm representatives to bring a ‘super-complaint' to the SEB to highlight systemic or emerging issues that threaten worker protections.

Get serious about deterring non-compliance by doubling the number of labour market inspectors and introducing the power to levy a financial penalty up to four-times any arrears owed for rights of a binary nature.

Strengthen the employment tribunal (ET) system for those cases that do require adjudication by extending application times to six months, enforcing awards adequately and allowing the new SEB to refer cases and intervene where appropriate.

Read the full report HERE
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