Naming, shaming and failing: Punishments for firms paying below minimum wage have little impact

Fines for companies who pay workers less than minimum wage aren’t steep enough to be a deterrent and publicly shaming them has little impact, research has found.

A three-year study by think tank the Resolution Foundation found consumers “always favour cheaper prices over ethical concerns” – leading experts to call on the government to do more than “name and shame” firms who exploit their workers.

The study estimates that a company found to be paying workers under the minimum wage would need to be fined around 700 per cent of arrears (overdue wage payments) to counteract the savings the company made in docking pay.

This is more than three times the maximum penalty of 200 per cent that HMRC can currently issue.

“Fines are too low so there is little economic incentive for rule-breaking employers to change their ways,” said Hannah Slaughter, economist at the Resolution Foundation.

“As well as raising the profile of the ‘naming and shaming’ regime, the government must introduce tougher financial penalties and more widespread enforcement to ensure that rule-breaking firms are caught and deterred,” she continued.

The Low Pay Commission and Department for Business, Energy and Industrial Strategy (BEIS) names and shames employers who have failed to pay all of their employees at least the minimum wage. 

Household names including John Lewis, The Body Shop and Sheffield United Football Club were named, shamed and fined this year. 

But the shame levied on John Lewis didn’t last long, explains Slaughter, because businesses with big brand names are somewhat protected from reputational damage as customers “have already decided what they are like as a brand”.

Worse still, only one-in-five of the firms interviewed had heard of the policy, limiting its use as a deterrent. 

“Naming dodgy firms only works when they are caught in the first place, so more widespread enforcement is needed,” Slaughter continued. 

“There’s far more people being underpaid the minimum wage, for example, than are being flagged up on this naming and shaming list.”

While smaller businesses were found to be more likely to break the rules – minimum wage workers in micro-businesses are 37 per cent more likely to be paid below the minimum wage compared to those in the largest businesses – they are less likely to get caught and named for doing so, according to the research. 

Unpaid overtime is one way businesses “systematically chip away at people’s rights in an effort to cut costs,” says Dr Dora-Olivia Vicol, director of the Work Rights Centre. 

Known as ‘wage theft’ this practice can push those earning minimum wage below the legal threshold. 

For example, a person under the age of 23 earning a salary of £18,000 would be receiving the national minimum wage if they worked their contracted 35 hours per week. But once this creeps up to 40 hours per week an increase in pay, their hourly rate would fall below minimum wage.

“It’s been a difficult year for a lot of businesses, but that’s no reason to take from workers,” Vicol continued. 

To force companies to comply with labour market rules, the Resolution Foundation is calling for a strengthening of the profile of the existing ‘naming and shaming’ policy, rigorous enforcement of the rules, and tougher financial penalties for rule-breaking.