Some drive their workers to Department of Employment offices to sign on or give them time off to do so. Many pay lower wages because workers are also claiming benefit.
The department, which has set up a special team to combat collusion, said yesterday that last year 55 employers were prosecuted and another 71 cases are pending. Most were small companies employing less than 15 people. Graham Bambridge, the department's head of fraud investigations, said: 'We have discovered more collusion but this may be because we are more alert to it and are devoting more resources to it.'
David Hunt, Secretary of State for Employment, said: 'These are employers who are actively encouraging their workforce to claim unemployment benefit illegally by, for example, giving them time off and, in some cases, even driving them to Employment Service offices to sign on.
'This is a flagrant abuse of taxpayers' money and inspectors have my full support in cracking down on them. Moreover, this behaviour gives unscrupulous employers an unfair advantage over their competitors.'
Mr Hunt said it was 'an example of how the black economy corrodes the fabric of our society'.
The department yesterday announced the highest figures for unemployment benefit fraud investigations and prosecutions for several years and said it had saved the taxpayer almost pounds 45m in 1992-93.
Its 780 inspectors carried out 264,616 investigations, as a result of which there were 2,602 prosecutions and another 61,129 people withdrew their benefit claims. It is thought that about 250,000 out of nearly 3 million claimants may be getting benefit illegally.
Among areas targeted were seaside resorts in South Wales where 550 workers - including mini-cab drivers and employees in hotels, the catering industry and amusement arcades - withdrew their benefit claims and another 27 face prosecution.
More cases of 'travelling fraud', where people live in one area and work in another, were uncovered. Fifteen people from Nottinghamshire were prosecuted after being caught selling goods door-to-door on the South Coast.
In Kent, inspectors investigated 392 casual fruit and vegetable pickers, as a result of which 184 of them withdrew fraudulent claims. Out of 150 mini-cab drivers interviewed at Heathrow, west London, 107 were illegally getting benefit.
Most people are not prosecuted because of insufficient evidence, or because the cases are too minor. They usually take the investigators' advice that they should withdraw their claim.
Often the workers give false names to the investigators and employers. Sometimes these are of people they know, while others have called themselves after television personalities, football stars and even the Queen.
Mr Hunt said: 'The vast majority of benefit claimants are genuinely unemployed. It is an affront to them that a cynical few seek to defraud.'