British employers find it surprisingly easy to flout labour law

BRITAIN is in the midst of an “employment miracle”. On June 12th official data showed the employment rate at an all-time high of more than 75.5%, even as the minimum wage continues to rise. Yet there is a dark side to the jobs boom. Mounting evidence attests that many employers do not give workers the rights to which they are entitled.

Evidence on labour-market law-breaking is inevitably patchy. But the practice appears widespread, with underpayment of the minimum wage the biggest violation. The Low Pay Commission, a government body, estimates that for every four people paid the hourly minimum wage, currently £7.83 ($10.50) for over-25s, one person is paid below it. Some firms unlawfully make big deductions from workers’ pay-packets for things like uniforms or accommodation. Roughly 5% of employees do not receive holiday pay, to which they are legally entitled. Workers in the fast-growing “gig economy” may be wrongly classified as self-employed, which allows their paymasters to avoid giving them rights.

In parts of the country such problems are rife. Newham is a poor part of London with many first-generation migrants. Fully one-fifth of employees earn less than the minimum wage, suggests a survey by the council. But contrary to popular perception, violations do not occur only on dingy backstreets. The government recently revealed that a five-star hotel in Dorset, with a luxury spa and whisky-tasting courses at £150 per person, had failed to pay a total of over £6,000 to 24 workers.

Flouting labour law does not hurt employees alone. It also puts firms that play by the rules at a competitive disadvantage. And the economic incentive to cheat is sharpening. Since 2015 the minimum wage has risen by over £1 and by 2020 it is expected to be another £1 or so higher. By then around 12% of workers aged 25 and over will be paid the minimum wage, up from 4% in 2015. Employers’ costs will jump. “Underpayment of the minimum wage is probably rising,” says Paul Sellers of the Trades Union Congress.

Infractions are widespread partly because workers often find it hard to insist on their rights. In theory they have three main options. Trade unions can be the first port of call for aggrieved workers, but they have far less power than they used to. Less than a quarter of employees are members, down from nearly 40% in 1990.

Going to court is a second option. As worries about employment conditions in the “gig economy” have grown, more workers are trying their luck—and succeeding. A former engineer for Pimlico Plumbers, a big London company, argued that he had been unfairly denied various rights, including holiday pay, after being wrongly classified as self-employed. After a long legal battle, on June 13th the Supreme Court ruled largely in his favour. Some bosses may now be warier of flouting the law. But for many workers, taking the legal avenue remains time-consuming and costly.

Most, therefore, rely on the third option: government. Responsibility falls to a confusing hotch-potch of organisations, including HMRC, the tax office. For a long time enforcement has been slack. The evidence suggests that a firm can expect a minimum-wage inspection about once every 500 years, a rate that appears low by international standards.

After becoming prime minister in 2016, Theresa May promised to fix Britain’s “burning injustices”. Here, she has been true to her word. Some parts of HMRC are struggling under the demands of Brexit, but last year its budget for minimum-wage enforcement rose by a quarter. The number of inspectors is up.

Much more could be done. Penalties for infractions are so weedy that some firms see them as a running cost (a business that is caught underpaying a worker £1,000 may end up paying as little as £2,000 to put things right). HMRC could work more closely with councils, such as Newham, which can use their local knowledge to enforce employment law more effectively. All this might make Britain’s jobs figures look a little less miraculous, as employers’ costs rose and jobs disappeared. But enforcing the law is not much to ask.