The weighted scales of economic justice: Unpaid Britain interim report

Unpaid Britain – interim report reveals that workers are denied £1.2 billion of wages and £1.5 billion of holiday pay each year

Researchers from Middlesex University London, funded by Trust for London, describe today’s (15/6) interim report, results about unpaid workers in Britain as the “tip of the iceberg”.

The report “The Weighted Scales of Economic Justice”* from the Unpaid Britain project based at Middlesex University estimates that:

  • £1.2 billion of wages are unpaid each year
  • £1.5 billion of holiday pay are unpaid every year
  • one in 12 workers does not receive a payslip (a breach of employment rights)
  • one in 20 workers receive no paid holidays (a breach of employment rights)
  • on 23,000** occasions in a year the impact of unpaid or delayed wages is so severe it leads to workers having no food
  • sectors most likely to not pay wages include sports activities, amusement and recreation, food and beverage services, employment activities – in London arts and entertainment as well as construction are also high offenders.

Lead author, Nick Clark from Middlesex University London said: “It has not been easy to find accurate data on the true scale of failure to pay wages in this country and I fear that this is the tip of the iceberg in terms of painting a realistic picture of unpaid Britain. One of the problems is that there is no official data on non-payment. Not paying wages is a civil rather than a criminal offence which means there are no crime statistics.

“Our interim findings demonstrate that there is a desperate need for improved workers’ protection and better guidance on their rights and how these can be enforced. With an uncertain Brexit around the corner there has never been a more important time to safeguard, protect and enhance workers’ rights.”

The researchers found employers can withhold wages with impunity and there is a widespread culture of repeat offenders. Moreover they found that directors of half of the companies that were dissolved and who had defaulted on wages returned as directors of other companies in due course.

Types of unpaid wages include failure to provide holiday pay, unpaid hours of work and unauthorised deductions. Other types include not paying the last wage (or outstanding holiday pay) or ceasing to pay when insolvency was likely.

The researchers also looked specifically at London. The arts, entertainment and construction are big employers in London and they featured prominently in London Employment Tribunal cases involving unpaid wages. The report shows that London displays both the lowest and highest proportions reporting no paid holidays: 2.5% in Central London, 8.7% in Outer London.

Middlesex University researchers used the following sources to gather data on this subject: Labour Force and Family Resources surveys, lists of National Minimum Wage offenders, Insolvency Service data (secured through Freedom of Information requests) and Employment Tribunal judgements. In addition the Gangmasters Licensing Authority, Barnet Citizens Advice Bureau, Lambeth Law Centre and the Chartered Institute of Payroll Professionals all permitted access to survey or casework data. A series of case studies (mostly from London) were also used to illustrate the stories behind non-paid wages.

The Unpaid Britain project was established at Middlesex University Business School in September 2015 and is co-funded by the Trust for London. The final report is due in November 2017.

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TUPE or Not to Be?

Over the past twenty years there has been a rapid increase in the amount of work outsourced to agencies and third party subcontractors within the housekeeping departments in major hotels. Almost every hotel in London will have a sizeable proportion of its housekeepers, room attendants and linen porters employed by a third party. In many cases the entire department will have been outsourced.

Most of these outsourced workers will be migrant workers and because they work back of house and are not customer facing many will have little or no spoken English. They will be paid minimum wage, with supervisors on a slightly higher rate. They will invariably be on zero hour contracts with hours provided each week largely dependent on the day to day room occupancy levels in the hotel in which they are based in.

The contracts awarded to the third-party housekeeping contractors are predominantly based on a business model which requires them to invoice the hotel for the number of rooms cleaned per day, rather than the number of staff employed and the number of hours worked. This is a hangover from previous official guidance which suggested the hotels could use the piece work regulations within the Minimum Wage act to pay workers based on the number of rooms cleaned rather than hours worked. This became quite widespread. However, following numerous representations from Unite the Union to the Low Pay Commission the guidance was withdrawn and legally housekeeping staff must now be paid by the hour. However, major hotel chains have retained the business model and usually award contracts to the lowest bid for cost per room.

These circumstances create a perfect storm of exploitation, underpayment and non-payment for housekeeping staff, with constant pressure on them to increase productivity and the small number of service suppliers who attempt to work ethically being constantly undercut.

Sharp Practice

Some the sharp practices we come across regularly include not paying staff for time spent on hotel premises but unable to start cleaning rooms due to delayed check-outs, holding back the first week’s pay on the grounds that these are training days and illegally getting workers to sign an agreement stating this will be withheld if the worker leaves within the first 3 months, making regular and frequent wage errors, not being paid for all hours work which frustrates staff to the point they simply leave without these ever having been resolved.

Short term relationships

The contracts issued to housekeeping service providers usually have no longer than a 2 year lifespan. This means that the contracts are frequently and regularly changing hands. The transfer process rarely, if ever, work in the favour of the housekeeping staff and consistently leaves them out of pocket.

Consultation

The TUPE transfer regulations require both the outgoing and incoming employer to consult both individually and collectively. However, because the majority of workers have English as a second language, are generally unaware of their rights and rarely if ever have any form of organisation or elected representation in place the consultation is effectively little more than a tick box exercise by both employers and something which the hotel itself would only ever engage in if its own directly employed workers were about to be sub contracted.

The consultation usually consists of one employer saying ‘I’ve lost the contract – but don’t worry everything will stay the same once I’m gone’. And the new employer saying ‘I’ve won the contract – but don’t worry nothing will change once I come in’. This never turns out to be the truth.

Collective consultation via reps elected specifically for the purpose does not happen in the main, or where the employer offers this the staff do not understand what they are being asked to engage in. Where collective consultation is not afforded, workers can claim compensation of up to 13 week’s pay in what’s called a protective award. Unite has successfully pursued protective awards in the housekeeping sector. But usually the failure to collective consult goes unnoticed and we are often approached by workers 4 or 5 month into a new contract when it is then too late to act.

Transferring the Liability

Under the TUPE regulations any outstanding liabilities including, ongoing tribunal claims or awards made and unpaid generally, transfer over to the incoming contractor. In the run up to the transfer date it is common for the outgoing contactor to do all they can to ensure as much as possible of the liability for monies owed to workers becomes the liability of the incoming contactor. This will include not rectifying wage errors or unpaid hours, refusing accrued holidays (particularly if the end of the holiday year is approaching around the time of the transfer), deliberately dragging out any settlement negotiations on legal claims, withholding money for training days etc.

Once the liability transfers over to the new contractor the employees are likely to be faced with an argument from their new employer that none of these liabilities were revealed by the old employer as part of the due diligence process. This usually ends up in further delays, with both the old and new contractor essentially banking on workers reaching the point where they just give up on money rightfully owed to them.

Instigating a head count reduction

The incoming contractor will have put in a lower bid than the outgoing contractor. Margins will be tight, so if they can get fewer workers to clean more rooms they will be able to profit from the invoice by room arrangement.

Laying people off or making them redundant could be time consuming and costly. So the employer usually instigates a series of measures clearly designed to encourage people to leave. This is  linked to staff having such low incomes that any small variation in pay can have huge implications in terms of rent, fares, food costs etc.

So, there will be a payroll issue whereby, immediately after the transfer, a large number of staff find themselves on emergency tax codes, temporarily reducing their take home pay. They will find they are sent home regularly under the guise of low hotel occupancy. Pay errors will increase and hours will be ‘mistakenly’ unpaid.

If things don’t look like getting sorted out quickly workers leave in order to take up low paid work elsewhere just to pay the rent. In our experience 50% or more of staff can leave in the first few weeks following a transfer. This doesn’t only allow the new employer to reduce headcount at no cost it also usually mean that any liabilities for money owed by both the new and old employer get written off by the worker as a bad experience.

Ignorance is bliss (for some)

In theory, the TUPE regulations also protect items not specifically written into a workers’ contacts but considered an implied term through custom and practice. Here again housekeeping workers constantly find their rights undermined by the very nature of their employment.

The outgoing contactor may have had a daily productivity requirement of 16 rooms in an 8 hour shift. The incoming employer increases this to 20 rooms. The workers are losing because they are now cleaning more rooms to earn minimum wage. The incoming employer argues that productivity targets are not contractual, if workers put in a grievance this is endlessly dragged out, workers get frustrated and leave, new workers are recruited on the 20 room arrangement.

There may have been an arrangement with the old employer to pay a sum for extra rooms cleaned, but because the invoice for room arrangement it may only appear on the old pay slips as a payment for extra hours, so another unresolvable argument ensues. The new productivity may impact on the ability of workers to take their customary break – so what was once an unpaid half hour meal break and two unpaid 15 minute break may convert as much as an extra hour of unpaid work. Whenever any of this is raised with the hotel themselves they will invariably play ignorant and lay the blame firmly at the door of the contactors without offering any intervention whatsoever.

Generally workers end up out of pocket.

Conclusion

The TUPE transfer regulations are an important piece of worker protection. As they are based on a European Directive they could easily be under threat post Brexit. However, as with any form of legislation workers find it difficult to enforce these rights where they are not underpinned by collective bargaining and union representation in the workplace. There are 5 major hotel chains who are signatories to the United Nations Global Compact and one which is a foundation member of the Ethical Trading Initiative. They are supposed to respect and encourage the rights of their workers to Freedom of Association and Collective Bargaining.

All of these hotel chains are engaged in outsourcing their housekeeping departments. They are also supposed to ensure sub contacted service providers afford the same respect and encouragement, allowing workers to engage in collective bargaining.

They do in almost every other major city in the world.

They do not in London and the rest of the UK. They collude and engage in union avoidance tactics to maintain a union free environment within hospitality. This in turns creates the climate where the wholly unethical practices described here can fester and grow and where workers regularly do not receive wages and payments rightfully due to them.

Delinquent Employers and in-work benefits: Intended and Unintended Consequences

Many low paid and part-time workers are dependent on welfare benefits to bring their income to a level which meets their essential expenditure. This unfortunate fact goes against the prevailing narrative of work-shy, undeserving poor prevalent in the media and used by government to justify deep cuts to the welfare state. While it might be argued that the state ought not to top up low wages through in-work benefits and through tax credits in particular, it is unavoidable while wage stagnation continues and living costs inexorably rise, and no amount of pontificating about minimum wage levels will solve this problem.

Being in receipt of in-work benefits requires a great deal of application from the claimant, and the worker faces a great deal of pressure to immediately report any changes to their rate of pay and to provide supporting evidence of that. And this is where an obstructive, delinquent or simply disorganised employer can have a seriously deleterious effect on the lives of their workers.

This post describes some of the ways in which employers’ actions, whether motivated by a desire to maximise profit, avoid scrutiny from Her Majesty’s Revenue and Customs (HMRC) or to circumvent National Minimum Wage legislation, can result in a knock-on effect which reduces or stops the worker’s benefit income and puts their quality of life, home and health at risk.

Not supplying payslips

The right to a payslip is enshrined in the Employment Rights Act 1996 but is flouted by many delinquent employers. All in-work benefits require the claimant to provide evidence of their income, and if they cannot, their benefits may be stopped and they may be asked to pay back any benefit previously received. Additionally, while any investigation is being carried out, the claimant’s benefits will be suspended, causing additional hardship and often pushing people into rent arrears and other debts. For example, at Citizens Advice Barnet we recently advised a client who had worked part-time for two employers. One had offered her extra hours, so she accepted and gave up her other job. She reported the change of circumstances to the benefits authorities, as she was obliged to do, but when they requested evidence in the form of payslips, her employer refused to provide them, saying that he had never given anyone payslips and did not intend to start now. Her benefits were suspended and she fell into financial hardship – and the employer continued to refuse to provide evidence of the hours she was working. Latterly he produced hand-written payslips covering a short period, which he sat down and wrote in from of the client, each with a different pen. These contained inaccurate information so were useless as evidence of anything. The employee had to appeal the benefits decisions – and the benefits were ultimately reinstated – but her stress and hardship caused by the employer shirking his statutory duty were damaging and completely unnecessary.

Late payment of wages

Late payment, while it causes cashflow problems, does not usually affect in-work benefits. However, where it can cause real problems is when a person loses their job and makes a claim for Universal Credit (UC). UC is gradually being introduced across England and Wales as a replacement for almost all other benefits – paid as a single monthly payment. The problem that late payment causes arises in quite specific circumstances. If someone claims UC, they are subject to a 4-week ‘assessment period’ during which their income for that period is used to calculate their entitlement. If they leave work having received their final pay and them claim UC, there should be no problem – but when the final payment is wrong, as it often is, and the employer pays the difference later (which will usually include accrued holiday pay, notice pay etc), then that will be counted as income for the assessment period (even though it should have already been received) and the claimant will have to wait a further 4 weeks before they can receive any UC. This illustrates well the complexity of the benefits system and the unintended consequences late payment can have. In effect, this will mean an additional 4 weeks where the claimant is unable to pay their rent or feed their family.

Zero Hours contracts

For a person on a zero hours contract, reconciling that with an ongoing claim for in-work benefits creates enormous complexity and an administrative headache for the worker. In order to avoid potential overpayment of benefit and the resulting allegations of fraud, the employee has to report any change in earning to the benefits authority immediately. However, where there is a zero-hours contract, in some weeks the worker may have 40 hours of work, in other weeks 2 or 3. This means that their benefits payments will fluctuate along with their wages, but the benefits payments – particularly housing benefit which is paid in arrears – lag behind and make budgeting extremely difficult. Most people who are in low paid work will receive some housing benefit to enable them to top up their income to pay their rent, and where the housing benefit is paid directly to the landlord (as it often is), the claimant simply does not know how much to pay themselves to make up the difference. This all contributes to a feeling of helplessness and has the potential to lead to eviction if the landlord gets fed up with receiving fluctuating payments.

Deliberately avoiding liability for statutory payments

This happens most often in cases of female workers on zero hours contracts or contracts which state a low number of hours but where custom and practice means that the worker is actually working far in excess of the contractual position. Where these workers become pregnant, the employer has a duty to pay Statutory Maternity Pay (SMP). However, despite being able to reclaim this from the state, many employers, either because of a perceived administrative burden or from an ideological opposition to pregnant workers, will seek to avoid liability. The method is simple – gradually reduce the number of hours so that by the time the calculation for SMP is made, the earnings are below the qualifying level of £112 per week. This does take some application from the employer, as the calculation averages the gross pay for the 8 weeks before the 15th week before the date the baby is expected, so they really do need to think ahead in order to circumvent their employee’s rights.

These are only a few examples, but in combination with the zealous pursuit of benefits claimants by the Department for Work and Pensions and HMRC (which has been well documented) where any question over entitlement is treated as potential fraud – in alignment with the prevailing media and government narrative – it is yet another instance of low paid workers being exploited, both by their employer and by the administrators of the safety net which is supposed to be there to help them.