Minimum wage offenders in London: distorted perceptions of delinquency

In October 2013, a new “name and shame” regime was introduced for employers who had been identified as breaching National Minimum Wage (NMW) regulations. Since then, the government’s business ministry (now known as BEIS – pronounced as “baize”), has been publishing periodic lists of offenders, the latest of which came out earlier this month.

Unpaid Britain has taken a closer look at the details of the 104 London-based employers so far identified. According to our analysis, these London employers had deprived 16,201 workers of a total of £2,274,000 in minimum wages (an average of about £140 per worker). We have looked at what these cases can reveal about breaches of employment contracts, partly through categorising them by industrial sector, and partly by checking for indicators of company survival.

For the media, who love a human interest story, tales of extreme exploitation of “vulnerable” workers by evil individual employers are bread and butter. To some extent, this is echoed in regulators’ approach, with BEIS listing large numbers of small employers and apparently targeting sectors known to host large numbers of SMEs. However, the scale of an offence can be measured through several different prisms. If we take the number of offending employers from each sector, we will have one idea of which is the most abusive. Measuring the number of workers affected will tell us something else. Finally, the sums of money involved may be the most significant, from both the workers’ and employers’ points of view, and will tell us still something else.

This is where the economies of scale come in. Let us assume for a minute that an employer wants to boost their profits by depressing wages (not too much of a stretch of the imagination), and that for at least some workers this may involve breaches of employment regulation. For these breaches to be sustainable and substantial, they will ideally represent small sums at the individual worker level, but be widespread and continuous. They should also have a low chance of detection and (in the event of discovery) be plausibly deniable as a deliberate strategy.

Taking the evidence presented in the London list of shame, we can test this by presenting the sectoral data in a variety of ways, firstly by counting the guilty employers (see table 1).

Table 1 By number of employers

Other personal services 17
Food & beverage services 15
Retail 11
Education 10
Employment activities 5

Other personal services, which tops this league, contains the hairdressers and nail bars traditionally presented as sites of exploitation, and recently suggested by the CEO of the Gangmasters Licensing Authority as priority areas for the GLA’s new remit (when it takes on an extra A and becomes the Gangmasters and Labour Abuse Authority). However, these are small workplaces, so those 17 employers were found to have underpaid only 25 workers. The largest numbers of underpaid workers were found in a largely different group of sectors, led by the retail industry. Not surprisingly, these sectors also showed the largest total sums identified as outstanding (see tables 2 and 3).

Table 2 By number of workers affected

Retail 13307
Security & investigations 2519
Human health 177
Food & beverage services 82
Other personal services 25

Table 3 By total sum owed

Security & investigations £1,742,655.56
Retail £244,302.49
Food & beverage services £160,199.64
Education £24,229.59
Other personal services £22,308.05

 A handful of cases dominate these last two tables: retailers Debenhams (thought to have underpaid workers by one day per year) and Monsoon (who had required staff to repay the company for clothes they were obliged to wear at work); TSS (Total Security Services) (who claimed to have made “an inadvertent mistake” with a salary sacrifice scheme); and twice-featured San Lorenzo restaurant (who apparently were struggling with family crises). The sectors showing the highest average sum per worker are again different, led by residential care and telecoms, but these represent only two cases per sector, each involving one worker. Food and beverage services features in all the tables, confirming its place in the Index of Employer Delinquency first proposed on this blog. However in this analysis of NMW offences, the sector owes its place there to the double appearance of the upmarket San Lorenzo restaurant, found to have underpaid 30 workers in August 2016, and 29 again in February 2017. The retail sector, although showing the second highest total sum outstanding, showed only an average “take” per worker of only £18.36.

Table 4 By average sum unpaid per worker

Residential care £3170.09
Telecommunications £3004.67
Travel agency, tour operators £2732.09
Other wholesale £2204.97
Food & beverage services £1953.65

These figures suggest that the employer most wanting to operate a sustainable system would do well to take little and often, since that is where the big money can be found. The exception to this seems to have been the case of TSS (Total Security Systems) Ltd of east London, who had both a large number of workers affected, and a relatively high sum per head (£691.80).

TSS claimed that a salary sacrifice scheme was the source of the underpayment, and was aimed to increase workers’ take home pay, but was withdrawn in 2014. Also in 2014, the highest paid director of the company received a salary of £2.6m, suggesting that other means of boosting workers’ pay may have been available. The 2014 accounts also tell us that at the end of October that year, provision was made in the company’s accounts of £1,736,000 for “payroll liabilities”. The sum owed to workers according to the NMW offenders list issued by the government in February 2016 was £1,743,000. I wonder, as they say in Private Eye, if these sums are by any chance related?

One other factor Unpaid Britain has been monitoring is the health of companies who have been pointed out by BEIS. Our work on Employment Tribunal (ET) judgements suggests that many of the companies who are judged to owe their workers wages, become insolvent or are dissolved, possibly to avoid payment. In our sample of London ET cases including “deductions from wages” and lodged in 2012 and 2014, only 36% of private sector employers remained active at the end of 2016.  Research conducted by Ipsos Mori and Community Links in 2012 for the Low Pay Commission found that NMW offending employers were likely to cite affordability as one of the drivers of their failure to pay. Were this to be the case, one might expect a high level of company dissolution amongst employers on the list of NMW offenders. In fact we find that 92% are still active. At this stage, this comparison is somewhat crude, as it does not take account of time lags or other factors, but it suggests that reports of the impending demise of those forced to pay the NMW may have been premature.

The data does not prove the existence of the employer strategy posited earlier in this blog, but it most certainly does not disprove it, and provides some support for it. Later in the year, Unpaid Britain will be drawing together the many strands of our research to describe the factors underlying the non-payment of wages, but in the meantime, as always, we are happy to hear of examples (confidentiality respected).

A note of caution: These cases do not include unpaid holiday pay, or wages owed in excess of the NMW, so the sums owed could be considerably larger than reported by BEIS. Some employers may be identified as London-based but have underpaid employees located across the country, similarly others with workers in London may be based elsewhere. We have sought to locate employers and identify their industrial sector from information provided on BEIS lists, supported by Companies House data and internet searches, but in some cases the workers may have been carrying out work in sectors other than the one identified as their employer’s main business. Finally, the sample of only 104 employers is unlikely to be a representative sample of NMW offenders.

 

The disappearing payslip

I recently took part in an HMRC “webinar” on the National Minimum Wage, offering help and support to union reps wishing to assist members enforce their rights. During the course of this, participants were told of the importance of checking payslips to see if workers had been properly paid.

This confirms views expressed by some of the advisors interviewed in the early stages of Unpaid Britain, and my own experience assisting workers in the past. The payslip is an important piece of evidence in identifying errors, unpaid wages and unlawful deductions, and its absence is usually a sign that there is something seriously wrong with the employment relationship.

The general right to “written pay advice” dates back to the 1960 Payment of Wages Act, and the requirements have changed little since. Then, gross pay, net pay and any deductions had to be shown, and this remains the case now under Section 8 of the Employment Rights Act 1996. However there is no requirement in law to show how the gross figure has been calculated – by showing the number of hours worked and the hourly rate of pay for example. Unions have argued that this can leave workers with insufficient information to assess whether they have been paid enough. In the latest Low Pay Commission (LPC) report (para 66), the LPC have taken note of these points and recommended (not for the first time) that the government consider requiring that payslips of hourly-paid workers should include the number of hours for which they are being paid.

But the absence of details on a payslip is not the only problem. The absence of a payslip at all seems to be a growing problem – and in London the effect is particularly marked (see chart)[1]. Our analysis of data from the official Family Resource Survey, shows that one in four employees in London does not receive a physical payslip, 15% because it is now said to be provided in electronic form, and over 10% because workers report that their employer does not provide one at all.employees-with-no-payslips-correct-real

Unlawful

There are two troubling aspects to this. Firstly the failure to provide a payslip is unlawful, and could (if taken to an Employment Tribunal) result in the award of a penalty. This is explained by Unpaid Britain Advisory Group member Jo Seery of Thompsons Solicitors:

“Where a tribunal finds that un-notified deductions have been made in the 13 week period immediately preceding the… claim being lodged, [they] may order the employer to pay a sum not exceeding the aggregate of the un-notified deductions … So a tribunal could order the sum of tax and NI contributions be paid by the employer where these have been deducted but not notified to the employee.” 

As Jo also points out, for those workers whose earnings are below National Insurance or tax thresholds, there is no penalty for a failure to provide. And in my experience, employers will often “discover” the missing payslips and provide them before any ET hearing, thus avoiding any penalty. Where the employer has disappeared, or is insolvent, or resists recovery attempts, the penalty is neither here nor there because even if it is awarded, it will not be paid.

Without payslips, employers may deny that those claiming owed wages were ever employed by them, or were employed by other associated companies. Workers who suspect that NI or tax deductions were not paid to HMRC have little to support them when they attempt to ensure that their contributions record is correct. This may have serious consequences for pension and benefit entitlements, and for migrants seeking to establish residency rights (for which the paperwork requirements are ridiculously stringent).

Workers suspecting contributions are not being paid over by their employer can complain to the tax authorities (HMRC) via their “tax evasion hotline”, or online, or by post although “HMRC won’t reply to confirm they’ve received your letter”[2].  Workers using this method may never find out what steps have been taken to rectify matters, so as an enforcement method, this leaves something to be desired.

Employers are also required by law to maintain records to demonstrate that they are paying at least the National Minimum Wage (NMW), and although workers may have the right to inspect these, so too do NMW inspectors. Failure to maintain such records is a criminal offence, but there do not appear to have been any prosecutions for this.

Digital

The shift to electronic payslips presents separate problems. Most employment lawyers seem to agree that this probably fulfils the legal requirement, as long as the opportunity is afforded to workers to access a computer to see their payslips. However, in the real world of aggressive management, many workers will be reluctant to assert this right, even if it is notionally available. Secondly, while it is true that many workers now have smart phones or tablets and can easily access their employers’ system, or open the attachment to an e-mail, or the SMS message (this is apparently used by some employers), not all will be able to do so. And even if they do, does the system permit the worker to save a copy, so that if they leave the employer, they have a record of deductions?

Respondents in Chartered Institute of Payroll Professionals surveys are asked if e-distribution is under consideration by those not already using it, and in the latest survey available (2103/14), 23 out of 62 said it was. From this admittedly rather small sample, it seems likely that there is a continuing trend towards the use of digital payslips, with serious implications for workers who have problems with access to technology, and for the use of payslips as evidence.

Enforcement

There is clearly a case for making the required format of payslips more detailed – providing hours worked, and holidays outstanding, for example – and a case for unions to keep an eye on the design and administration of pay systems, ensuring that workers are aware of the need to check and retain payslips (and that they can easily do so).

But union coverage is partial, particularly in the private sector, so penalties for non-provision need to be dissuasive, and accessible. This means no Employment Tribunal fees! Providing reliable routes for workers to complain of non-provision of payslips, and a system of inspection of payslips could both help to identify other abuses of workers’ rights and be of benefit to the exchequer.

[1] Of the UK regions, Wales is worst with 14.3% reporting no pay slip and a further 12.7% receiving an electronic version. London showed the second highest proportion. Nationally, 8.6% of workers report receiving no payslip, and 11.6% an electronic one (2014/15 figures).

[2]https://www.gov.uk/government/organisations/hm-revenue-customs/contact/reporting-tax-evasion, accessed 23 June 2016

Impact of Employment Tribunal fees on selected employers

We have reported before on our trips to the Employment Tribunal (ET) judgement registry, hidden away in the heart of East Anglia (Bury St Edmunds). We are back there now, and as before concentrating on the cases which are key to our research namely those featuring “unauthorised deductions from wages” (generally known, for historical reasons, as Wages Act claims), and those relating to failure to provide holiday pay.

As we plough through scanning hundreds of judgements, we see some respondent (that is to y, employer) names recurring. This makes us wonder if it would be easy to see how frequently these company names come up as respondents in cases involving claims of unpaid wages. So we chose a few of the larger outsourcing and facilities management companies, based on their tendency to have subsidiaries beginning with the parent’s name. I should say that this method is far from fool proof – not all of the subsidiary names will follow this model, and it of course leaves out parent companies which do not follow this model at all.

So our leaving out some large employers is not intended as a slight – we were simply using the rudimentary search strategy which is available on the database of ET judgements, namely putting the wildcard “*” after the first few characters of the company name. So the five parent companies selected almost but not quite at random, were Capita, ISS, Mitie, Serco & Sodexo. We looked to see how many cases which included “wages act” claims had reached a hearing, by the year in which the claims had been accepted. We looked at each year from 2010 to 2015. In the first year, these five companies accounted for 148 such cases, but by 2015, this had fallen to 41.

Perhaps this is good news for their collective workforces. Perhaps they are just much less disgruntled, and more confident that they have been paid correctly for their labour power. Or then again, perhaps the introduction of ET fees has been of great benefit to these companies, many of them delivering outsourced and privatised public services. Because there does seem to be a dramatic fall after 2013, the year fees were imposed. Have a look at the graph, and see what you think.

ET cases includin WA claims reaching hearing

Looking for unpaid wages, finding Delinquent Employers

Sometimes, when a researcher asks for comments on a piece of work, they are really asking for validation. I’m not saying I was when I proposed a typology for unpaid wages to a workshop that Unpaid Britain organised in May. But if I had been, I would have been disappointed.Group C picture

We brought together a pretty expert group of practitioners and academics. Then we asked them to try and categorise real life cases of unpaid wages by whether or not they were deliberate, and whether workers might have given some form of consent. The response could be summarised as “yes, very interesting, but you can’t make it work”. Instead, we were directed back to the specifics of employers’ strategies in different economic sectors. And if this did not endorse my proposed typology, it certainly validated the use of the participative workshop.

Jpeg

The research team have spent the intervening months considering how this might be achieved. The result is a method for identifying the sectors most likely to exhibit non-payment. To do this, we had to confront the lack of data specifically measuring non-payment. Key Informant interviews, workshop participants, our Project Advisory Group, and our examination of Employment Tribunal judgements all suggested that unpaid wages may present in several forms simultaneously, as well as being accompanied by other abuses of workers’ rights.

So, using two sets of official statistics we have tried to find data which might indicate the abuse of workers’ rights. From the Labour Force Survey (LFS) we chose reported unpaid overtime, which may reflect a general level of pressure in the workplace, but also breaches of at least some workers’ contractual entitlements. We also selected reporting of zero hours contracts (ZHCs). While these are not automatically unlawful, by not committing the employer to provide a certain minimum level of payment per pay period they blur other entitlements such as that to holiday pay, and the variability of hours renders under-recording (and therefore underpaying) of hours more feasible. The LFS may undercount this – overall, only 1.8% of those in employment reported having a ZHC, but this ranged from 0% in mining support services, up to 9.2% in security and investigation activities. Finally we looked at paid holidays – about 5% of respondents in employment report that they have no entitlement to paid holidays, and this is not evenly distributed across sectors (it goes from 0% in manufacture of electrical equipment up to 18.4% in sports, amusements and recreation). We can be certain that workers not receiving any paid holidays have had their rights breached.

A second survey, the Family Resources Survey (FRS), includes two sets of data which could be indicative of abusive practices. One relates to the provision of payslips, which is a legal requirement under the 1996 Employment Rights Act. 8% report that their employer does not provide a payslip, ranging from 0% in extraction of crude petroleum and natural gas up to 21.3% in domestic households. The other is self-employment. Operating on the assumption that work falsely classified as self-employment by employers wishing to reduce labour costs (as opposed to genuine self-employment) is likely to be low paid, the FRS permits the identification of the extent of low-paid self-employment by sector, indicating the likely presence of “bogus” self-employment.

These five indicators can shed some light onto the variety of practices which might be deployed to separate the worker from what they have rightfully earned. What they cannot do is give us a definite count of abuse, so we opted for a series of inter- sectoral comparisons, allowing us to identify those sectors most likely to display forms of abuse, and therefore the non-payment of wages.

Excluding sectors with too few cases, we scored each sector from 1-10 for each factor, with 10 representing the most abusive. Then we added them together to arrive at an overall “Index of Employer Delinquency”. The top (or perhaps bottom) ten for London[1] are shown below.

Top Sectors in London Index of Employer Delinquency
1 Creative, arts and entertainment activities
2 Food and beverage service activities
3 Other personal service activities
4 Sports activities and amusement and recreation activities
5 Libraries, archives, museums and other cultural activities
6 Other professional, scientific and technical activities
7 Education
8 Advertising and market research
9 Repair of computers and personal and household goods
10 Security and investigation activities

 

In one sense the overall outcome is probably unsurprising for those who are familiar with employment practices in Britain today. The Index shows service sectors predominating amongst those showing the highest tendency to abuse employment rights.

Pride of place, if that term can be applied in this context went to “Creative, arts and entertainment activities”, where substantial low paid self-employment exists alongside frequent failure to provide paid holidays (these two categories are unlikely to occur in the same individual cases, since the holiday question is posed only to those identifying themselves as employees).

Next, and perhaps most significantly in numerical terms, is “Food and beverage service activities” – restaurants, cafes and bars in other words. Here we see the use of ZHCs assume greater significance than low paid self-employment. Then we have “other personal services” (such as hairdressing and nail salon) and another cultural area – sports and entertainments, followed closely by museums and libraries, which has been the scene of several long-running industrial disputes over attacks on conditions and cuts in services (for example at the National Gallery and Barnet libraries).

The case studies for our next phase of research will be selected from this list, and we will be looking for a balance between large and small employers, and for types of worker (by gender, migration status and age). Suggestions are always welcome.

A more detailed description of and justification for our index can be found on the full paper here: Unpaid Britain project – developing a selection grid for case studies.

 

 

 

[1] Agriculture and mining and quarrying, which both score relatively highly in national data are not significant in the London labour market, and have been left off the list for the purposes of this project.

The creeping notion of working for free

Yesterday’s Guardian carried the story of a recruitment agency advertising for warehouse staff who would have to complete a three-day unpaid “induction” (yes, I know it went online on Sunday, but I am old school and still read a print version). The agency (GB Recruitment) was recruiting for a logistics company (Wincanton) who in turn was running the warehouse for DIY retailers B&Q.  Quite apart from being a vivid illustration of the chains of labour supply now at work in the economy, it highlights what according to Unpaid Britain’s initial (if largely, at this stage, anecdotal) findings suggest has become a common practice, seen by many young workers in particular as normal practice.

This seems to be combining two factors. One is the gradual creep of the notion that some workers – as a working category I am calling them new entrants (or re-entrants) to the labour market[1] – have labour power that is worth little or nothing. The other is the ingenuity of employers in labour intensive sectors in finding ways of trimming labour costs so that they fall below the National Minimum Wage.

Unpaid training had already been identified as a problem area in the care sector, by HMRC . They found unpaid training to be the most common type of unpaid working time contributing to non-compliance with the National Minimum Wage. However, they seemed to suggest some circumstances in which this might be lawful:

We found instances where prospective workers attend pre-employment induction events to assess their suitability for employment or as part of the job application process. In the circumstance where this activity is not undertaken as part of their terms of employment or not for any form of remuneration paid to or benefit received by those attending, the time spent is not working time for NMW purposes” (p. 5).

In conducting research on internships in an earlier job, I was struck by the many ways in which the work of the young had been down-valued to the extent that even some of them accepted that their labour power had no market value, beginning with work experience at school, job placements at college or university, advice to “volunteer” to improve c.v.s and culminating with full-blown unpaid internships.  Wage-free labour has become embedded in some sectors of the labour market, such as the cultural industries where unpaid internships still abound, and entertainment trade unions such as Equity and the Musicians Union are being forced to campaign for young people to be paid at all.

Interviews conducted during the early stages of the Unpaid Britain project revealed an initial unpaid training (also known as induction, or trial shifts) has almost become a rite of passage for young workers. Staff from one advice organisation told me that they were aware of one employer who seemed to have a constantly replenished supply of young workers working “training weeks” for which they would never be paid, nor would they progress on to paid contracts, thus guaranteeing the company an almost free workforce. Of course abuse on that scale can hardly be a long term strategy, but the more limited unpaid induction, trial shifts and unpaid training can be found with relatively little research.

So for example last autumn one health and social care recruiter was advertising care worker posts in London for which there was an unpaid induction (of unspecified length), while another agency  was recruiting parcel sorters in the Midlands who would also be required to “complete an unpaid induction during unsociable hours”. But agencies do not appear to be alone in playing fast and loose with the notion of a wage/work bargain. A hairdressing apprenticeship scheme in North London, which claims to be sponsored (among others) by a London borough, the Skills Funding Agency, City & Guilds and the EU Social Fund, advertised vacancies for apprentices who might be “subject to a 6 week to a 6 month unpaid trial period”. This perhaps reflects the 2014 NMW (Amendment) Regulations which introduced new rules for traineeships for young people aged 16-24, excluding them from NMW rights – again suggesting that such workers have little value.

But then JobCentre Plus has for decades been organising work trials of up to 6 weeks, for which the worker receives no wage from the employer – only benefits (plus travel expenses) from the state. It is said to be “voluntary”, but it is work, and it is unpaid. Unfortunately, “…the TUC has accepted Work Trials. We are sympathetic to the plight of long-term unemployed people, unemployment is a threat to all workers and the people who need to be helped are our friends, neighbours and relatives.” (TUC 2008)

B&Q and Wincanton both told the Guardian that unpaid induction contradicted their policies, and that the advertisements had been withdrawn, but the idea of them did not appear out of thin air.  Economist Joan Robinson’s statement that “The misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all”[2] is often used to justify all manner of abuses. But it is based on the notion that while the system denies (for those who have only their labour to sell) the means of sustenance to those who do not work, for those who do, work is the route out of poverty. But this notion is turned on its head if, in order to have the chance to be exploited, one must provide labour power for free. This is the lesson which is apparently being passed on to young workers, and is no doubt music to the ears of the abusive employer.

[1] This would include young workers (including working students), recent migrants, ex-offenders, those returning to work from long-term illness, and the long-term jobless, for example.

[2] Robinson, J. (1962) Economic Philosophy p.45