The Resolution Foundation is leading calls for the Government to improve the enforcement of the minimum wage after it emerged that only one in eight firms breaking the rules are being caught by HM Revenue & Customs (HMRC).
Research by the think tank found that there has been a sharp increase in the number of workers cheated out of wages, with an estimated 11,000 firms failing to pay workers the legal minimum wage during 2018/19.
However, HMRC inspectors identified only 1,456 of those breaking the rules and there are additional fears that the above-inflation minimum rate rise to £8.72 per hour due in April could result in more employers breaking the rules.
Around one in four workers over the age of 24 were paid below the legal minimum wage last year, with people working for small firms such as hair salons and carwashes most at risk of being underpaid.
Under current rules, firms who break the law in this manner are allowed to simply repay the wage arrears and fines issued by HMRC can be lowered because of early repayment, meaning that in many cases employers can underpay wages with no financial consequences even if they are caught.
A Government scheme naming and shaming employers caught paying under the minimum wage was also suspended in December 2018 after concerns that some firms were being shamed on technical rather than deliberate breaches.
Lindsay Judge, a Senior Policy Analyst at the Resolution Foundation, said there had been a worrying rise in minimum wage underpayment.
“As the Government plans to increase the legal wage floor, it is essential to strengthen the incentives for firms to comply.
“The Government can act today by encouraging HMRC to take a tougher line with minimum wage offenders, and being given the power to levy larger financial penalties.”