Workplace Report January 2021

Features

Where next for the minimum wage?

Last month, the government belatedly announced the National Minimum Wage (NMW) rates for 2021. The uplift from this year is considerably lower than previously projected due to the pandemic. To coincide with the LRD’s new booklet The National Minimum Wage: a trade union guide, we look at the NMW, its trajectory and where unions stand on this important statutory right

The news of the lower than expected uplift, to £8.91 an hour, comes as a blow to many low-paid workers, including men and women working on the front line in care homes and other areas, who will not see an increase in their pay in real terms next year. It will also have an impact on pay negotiations further up the wage scale, as many pay rises among lower-paid workers are set in relation to the statutory wage floor.

Who is covered by the NMW?

Being paid at least either the NLW or the NMW is an automatic right for all those over school-leaving age who have the legal status of “worker”. Broadly speaking, this includes all employees as well as anyone who is contracted and under obligation to do work for a particular employer. It excludes the self-employed who work for themselves and are not “controlled” by a contractor.

The Low Pay Commission estimates that there were 2 million workers paid at or below the minimum wage in April 2019 (National Minimum Wage Statistics, October 2020). This is around 7% of all UK employees. Jobs paid around the NMW are concentrated in a small number of low-paying occupations. The Low Pay Commission estimates that nearly half (48%) of all jobs paying at or below the minimum wage are in retail, hospitality, and cleaning and maintenance occupations.

• The largest of the groups where the NMW is prevalent, in employment terms, are the sectors dependent on consumer spending – retail, hospitality, leisure and hair and beauty.

• The next group of low-paying sectors are those directly affected by government funding, consisting of childcare and social care

• The third group are more dependent on business-to-business activity. This includes cleaning, employment agencies, security and enforcement, transport, storage and call centres.

• The final group considered are those that are more exposed to international trade, such as textile manufacturing, agriculture, and food and non-food processing.

However, the government and the Low Pay Commission (LPC), which makes the rate recommendations, insist that the NMW policy is still on target to reach 66.7% of median wages by 2024. They are also going ahead with the planned phasing out of the upper 25 and above age limit for the highest rate. The National Living Wage (NLW) will be available to 23- and 24-year olds as well as 25-year olds and above from 2021 and to all workers over the age of 21 from 2024.

Before the Covid-19 pandemic hit, the National Minimum Wage rates (which includes the National Living Wage) had enjoyed a five-year run of inflation-busting rises. It was due another this year based on the government’s target that the highest rate would reach two thirds of the median UK wage level by 2024. However, the rise for 2021 will now only be 18p on the highest rate, rather than the 49p projected.

What are the NMW and NLW rates?

There are currently five different rates for the NMW, depending on the age and category of worker. Prior to 2016, and the introduction of the NLW, there had been four. Rate changes come into force every year on 1 April.

The rates from April 2020 to 31 March 2021 are:

Age Band Hourly rate Increase from previous year
Over 25 National Living Wage Rate £8.72 6.2%
21–24 £8.20 6.5%
18–20 £6.45 4.9%
16–17 £4.55 4.6%
Apprenticeship Rate £4.15 6.4%

The rates from after April 2021 will be:

Age Band Hourly rate Increase from previous year
Over 23 National Living Wage Rate £8.91 2.2%
21–22 £8.36 2.0%
18–20 £6.56 1.7%
16–17 £4.62 1.5%
Apprenticeship Rate £4.30 3.6%

The reason given for the lower than expected rise is the economic strain caused by the pandemic, as well as the uncertainty around its true impact on wages. The Low Pay Commission, which recommends the rises based on their analysis of the economy, could not get an accurate picture of wage trends in 2020, as many pay deals were delayed, postponed or cancelled, and a large proportion of workers were receiving reduced wages via the Coronavirus Job Retention Scheme (furlough).

As the NMW is only set in relation to wage levels in the wider economy, any downward pressure on these also keeps the wage floor low. This method for setting the rates does not take into account the living costs of actual workers such as the rising cost of housing and childcare, nor the reduction in state social security support which has taken place after a decade of austerity. This had led to the rising phenomenon of “in-work poverty”, which affected 12.7% of all workers in 2020, compared to 9.9% in 1998.

However, the government sticks to this measure for the NMW, as pay below 66% of median earnings is the official definition of “low pay” and allows the government to claim they are still on course to “end low pay” by 2024. In contrast, the union campaign for a voluntary Real Living Wage, not to be confused with the statutory minimum does include the living costs and sets consistently higher rates.

Real Living Wage vs National Living Wage

The government’s 2016 rebranding of the National Minimum Wage as the National Living Wage caused a great deal of confusion because of the pre-existence of the campaign for a Living Wage (now renamed the Real Living Wage).

The campaign for a living wage was started by trade unionists and community groups in 2001, and fights for a minimum wage based on the actual cost of living for typical single workers and workers with children, taking into account expenditures such as accommodation, food, travel and childcare.

Since 2016, the Real Living Wage rates have been calculated annually by the Resolution Foundation and overseen by the Living Wage Commission, based on the best available evidence about living standards in London and the UK.

The latest Real Living Wage rates, calculated in November 2020, are:

• a UK Living Wage rate of £9.50 per hour – for everywhere outside London; and

• a London Living Wage rate of £10.85 per hour – for all boroughs in Greater London.

It is important to note that there are no age limits for either rate.

There are currently nearly 7,000 businesses, employing around 250,000 people, signed up to the Real Living Wage standard. Many more are on the Real Living Wage rates because of union campaigns, even though their employer may not have signed up to the official accreditation scheme.

The union response

The reduced uplift to the statutory wage floor in 2021 comes just as unions are arguing that the UK’s lowest-paid workers need a pay rise more than ever.

The retail trade union Usdaw expressed its disappointment that low-paid workers would not get the full minimum wage increase which had been promised. Its general secretary, Paddy Lillis, said that Usdaw had “provided the Low Pay Commission with evidence of why we need a new deal for workers, which includes at least £10 per hour and an end to unjust rip-off youth rates”, adding that the government had “missed the opportunity to fully recognise the huge efforts low-paid key workers have made through the pandemic”.

Frances O’Grady, the general secretary of the TUC, speaking before the details of the increase were announced, said, “the government must not renege upon its commitment to raise the minimum wage. Millions of low-paid workers are struggling to make ends meet. That’s not right during a pandemic – or at any time.”

The TUC is calling for an immediate rise for the NMW to £10, saying that wages below this rate are just not enough for workers to live on. Research by the TUC found that 3.7 million keyworkers, so essential to keeping the country going during the pandemic, are currently earning less than £10 an hour.

It argues that the recent increases in the NMW shows there is room for a more ambitious wage floor and points out that, until the Covid-19 crisis, employment had increased alongside increases in the minimum wage. This, it said, lined up with international evidence which shows “a very muted effect of minimum wages on employment, while significantly increasing the earnings of low-paid workers”.

The TUC concluded: “These economic circumstances are challenging. But without wage protections we know it is often low-paid workers who suffer – while shareholder dividends and executive pay continue to rise. We are not in a crisis caused by wages that are too high, nor in one that can be resolved with lower wages.”

Union demands are to:

• raise the National Minimum Wage to the level of the Real Living Wage announced annually by the Living Wage Foundation, with an immediate target of £10 an hour; and

• harmonise the differing National Minimum Wage rates into a single rate for all age groups. The government argues that age differentials in the NMW legislation are necessary because younger workers are more at risk of being priced out of jobs than older workers. However, unions argue that this age discrimination goes against a basic sense of fairness in the workplace and also the evidence of how many employers actually choose to implement the rates.

The call for these changes to the NMW comes alongside other union demands designed to help the lowest-paid and those most affected by the crisis, including:

• fair pay rises for public sector workers;

• banning zero-hours contracts and ending false self-employment;

• an increase in Statutory Sick Pay to the level of the Real Living Wage and which is available from day one; and

• bringing outsourced workers like cleaners in the NHS back into the public sector on public sector terms and conditions.

A 2020 survey of 3,000 low-paid workers who were member of the Communication Workers’ Union showed that 89% of respondents earning the higher voluntary Real Living Wage or less said they felt they were paid unfairly, and 69% said their pay did not cover all of their outgoings.

Unfair calculations

Calculating what can and cannot be included in an NMW payment is a complicated business requiring close understanding of the law (see our booklet for a full explanation). Recent court cases brought by the public services union Unison have shown that employers, in these examples in the care sector, will often try to reduce the time a worker is considered to be working in order to reduce their wage bills.

The Supreme Court is currently deliberating on an appeal by a careworker against a ruling that workers should be not paid full NMW for the time they spend sleeping-in at their workplace. This case is of particular importance to low-paid careworkers and those in the community and voluntary sectors who stay over in the places they work in. The case, supported by Unison, will have far-reaching consequences if won.

In September 2020, a group of homecare workers and members of Unison won a significant legal victory against three care companies commissioned by Haringey Council in North London.

An employment tribunal ruled that the companies had breached minimum wage rules by not paying careworkers for travel time when workers had no choice but to travel to complete their work. This decision has implications for thousands more care staff across the UK who look after vulnerable people by visiting them in their own homes.

One of the careworkers in the case travels between up to 15 clients in a day that starts at 7am and ends at 9pm. However, she was not getting paid for her time spent driving between appointments. This led to her earning well under half the legal minimum hourly rate for the hours covered.

The judgment said that travelling and waiting time of up to 60 minutes between appointments should be treated as working time. This will now provide other homecare staff with a clear method of calculating how much they are owed, says Unison.

Underpayment

There is a disturbing trend in the UK of significant underpayment of the National Minimum Wage and the illegal exploitation of workers.

A 2020 report by the Low Pay Commission estimated that, in April 2019, over 420,000 workers were reported as receiving less than the minimum wage they were entitled to that month. Around 360,000 of these workers qualified for the National Living Wage but did not receive it – 22% of all workers covered by the higher rate. Both of these estimates represented only a slight fall on the previous year, which was a record high.

The worst offending industries were:

• hospitality, where 44,000 workers, 18.9% of the total sector workforce on the NMW were underpaid;

• retail, where the same applied to 43,000 staff, 15% of the total;

• cleaning and maintenance where 41,000 workers were unpaid, 16.5% of the sector’s NMW workers; and

• childcare, which was the occupation with the highest proportion of underpaid workers, at 46%.

A recent high profile case of underpayment involved garment workers in the city of Leicester who have been found to earn around £3 per hour, way below the NMW. Earlier this year, the issue was raised in parliament by MP Andrew Bridgen, who had evidence that it affects around 10,000 garment workers in the city. A report by Labour Behind The Label found the same sweatshop workers were being forced to work in unsafe conditions during the Covid pandemic, even when reporting symptoms. The industry became the focus of a large outbreak of the disease.

Poor enforcement

While hundreds of thousands of workers receive less than they legally should, most employers breaching minimum wage legislation get away with it. The Resolution Foundation report Under the Wage Floor 2020 estimated that 11,000 firms failed to pay the NMW in 2018-19 and that HMRC inspectors identified only 1,456 of them.

HMRC’s own headline enforcement figures for 2018/19 show they are improving on previous years but still have a long way to go. In that year, 220,000 workers were repaid £24.4 million in arrears. In addition, HMRC imposed over £17 million in penalties on noncompliant employers. Around a quarter of the arrears identified by HMRC (£6.1 million, affecting around 24,000 workers) were found via the social care compliance scheme, an initiative encouraging voluntary declarations of non-compliance from employers in the care sector.

The government announced in February 2020 that their policy of publicly naming and shaming was to be resumed in April 2020 (after in was suspended in 2018) and that new rules on National Minimum Wage enforcement would be announced as part of government plans to create a single enforcement body to crack down on employment law breaches.

The new body, set to be announced as part of the forthcoming employment bill, will take over from the Office for the Director of Labour Market Enforcement, which currently oversees the work of three agencies:

• HMRC NMW/NLW, which enforces the national living/minimum wage;

• the Gangmasters and Labour Abuse Authority (GLAA), which licenses gangmasters in horticulture and food processing and was recently given powers under the Police and Criminal Evidence Act 1984 (PACE) to enforce certain labour market offences; and

• the Employment Agency Standards Inspectorate (EAS), which monitors employment agencies.

So far this year no employers had been listed publicly for breaches of the National Minimum Wage Act 1988, and the new employment bill has not been published.

Non-standard forms of employment

Another issue that works to undermine the NMW is the growing number of people working without standard contracts of employment and either falling outside of the legislation or working in sectors at high risk from non-compliance.

The most recent figures from the Social Market Foundation estimated that there were 1.7 million self-employed workers earning less than the statutory minimum wage. Such a large pool of labour willing to work for less than the national minimum undermines the legal rate and puts downward pressure on wages.

While the genuinely self-employed include small businesses and professional individuals providing services direct to clients and customers, a large proportion of this group are “bogus self-employed”. Bogus self-employment occurs when workers are declared as self-employed even though legal tests would likely define them as employees, or workers working for a particular employer.

The bogus self-employed effectively work for a contractor or company, under the control of that contractor or company, paid at their dictated rates of remuneration, and often using equipment they own (such as company-branded vehicles or “gig economy” software platforms).

Workers can be lured into bogus self-employed positions by employers with the promise of reduced tax bills. However, in reality the arrangement means that the employer can avoid paying the minimum wage, employers’ National Insurance, sick pay, holiday pay and pension contributions, thereby reducing costs for them and shifting risk onto the worker.

The CWU communications union represents several hundred low paid subpostmasters and delivery workers who are classed as self-employed and therefore not entitled to statutory minimum pay. A recent poll showed that three quarters of subpostmasters earn less than the NLW, and it is well documented that self-employed delivery drivers regularly earn below the minimum wage.

Many outsourced, agency and other non-permanent jobs are also concentrated in low-paying sectors.

TUC research says there are at least 3.3 million workers employed through outsourced companies, 615,000 by franchise businesses and a million by recruitment agencies, umbrella companies and personal service companies.

This non-standard employment shifts any financial or legal risks away from the client where the worker is actually working and onto the outsourcing firm. The TUC says this lack of responsibility has led to the driving down of pay and conditions and widescale non-compliance with NMW law, among other laws.

Equally, outsourced workers cannot bargain directly with their employer because their wages are effectively dictated by the third party client.

What can reps do?

• Address cases of underpayment of the NMW: If you suspect someone is being underpaid the minimum wage, there are defined steps to take to get the evidence and address the issues with employers or the authorities. For full details on the steps to take see the LRD’s booklet The National Minimum Wage: a trade union guide.

• Support and amplify the latest TUC NMW campaigns: https://www.tuc.org.uk/news/we-demand-ps10-hour-national-living-wage

• Support and amplify other union campaigns for a Real Living Wage.

• Talk to and organise any low-paid workers who might be in your workplace, support them to campaign and see if it is possible to bring them into your bargaining group, even if they work for a different contractor.

To order your copy of the LRD’s National Minimum Wage booklet: call 020 7928 3649 or visit https://www.lrdpublications.org.uk/publications.php?pub=BK&iss=2051

Low Pay Commission, National Minimum Wage: Low Pay Commission Report 2020 (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/942062/LPC_Report_2020.pdf)

Low Pay Commission, Non-compliance and enforcement of the National Minimum Wage (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/885382/Non-compliance_and_enforcement_report_-_2020_-_amended.pdf)

LRD booklet, The National Minimum Wage 2021 - a trade union guide (https://www.lrdpublications.org.uk/publications.php?pub=BK&iss=2051)

Resolution Foundation, Under the wage floor: Exploring firms’ incentives to comply with the minimum wage (https://www.resolutionfoundation.org/app/uploads/2020/01/Under-the-wage-floor.pdf)