Scandal of firms that dodge paying the minimum wage

Although it is supposed to be illegal to pay staff below those levels, employers are using a variety of ruses to sidestep the rates

Companies are routinely resorting to cynical dodges to avoid paying staff the national minimum wage, forcing the Government finally to act against abuses of the system.

The minimum wage, which is received by almost one million people, is £6.19 (rising to £6.31 in October) for workers aged 21 and over; £4.98 for 18- to 20-year-olds; £3.68 for 16- to 18-year-olds; and £2.65 for apprentices.

The Low Pay Commission, which recommends minimum wage levels, estimates that more than 100,000 adults receive below the legal rates – and the actual figure is probably considerably higher because of under-reporting of the problem. The TUC believes that between 250,000 and 300,000 employees could be unlawfully denied the minimum wage.

Although it is supposed to be illegal to pay staff below those levels, employers are using a variety of ruses to sidestep the rates. They include: restaurants assuming staff will receive a certain sum in tips and deducting that cash from their pay packets; employees being wrongly classified as volunteers and thus not entitled to a wage; companies charging staff for uniforms or benefits in kind, such as accommodation or transport; and paying cash-in-hand so that hours and wages go unrecorded.

Ministers and HM Revenue and Customs, which has responsibility for enforcing payment of the minimum wage, are preparing "tough new measures" against unscrupulous employers who try to exploit their lowest-paid staff members. Details are due to be announced next month.

Vince Cable, the Business Secretary, has warned there are "lots of abuses" of the minimum wage, adding: "Sections of the community who are desperate for work, having lost benefit entitlement, are particularly vulnerable."

The Low Pay Commission said it was "very disappointed" that a Government commitment to name and shame employers who flout the law had ended in failure, with just one offender – Rita Patel of Treena Professional Hair and Beauty in Leicester, which paid a member of staff £342 for 20 weeks' work when she was entitled to £3,703 – publicised in two years.

The TUC yesterday called for more offenders to be named, warning that some employers believed they could get away with ignoring the legislation. It also protested that just eight criminal prosecutions for non-compliance had been mounted in 13 years of the wage's existence. The TUC said the maximum fine of £5,000 should be increased as a further deterrent. Its General Secretary, Frances O'Grady, said: "We have a huge problem with minimum wage cheats and it is good that the Government is taking the issue seriously. However, its campaign against rogue employers is unlikely to be successful unless it is properly resourced and unless it raises awareness about the right to a legal wage among those being exploited."

The Resolution Foundation think-tank, which studies low- and middle-income groups, said large numbers of care workers were being "ripped off" because they were not paid for their travel time between house visits.

Gavin Kelly, its Chief Executive, said: "This practice needs to be stamped out. Rather than just relying on 'naming and shaming' the culprits, we need to see proper enforcement of the law and prosecutions of anyone who is found to be breaching the minimum wage regulations."

Dave Prentis, General Secretary of Unison, said: "It's shocking that more and more employers are trying to get round paying the minimum wage. The rate is low enough, without it being chipped away even further."

The minimum wage was introduced by the Blair government in 1999 at an initial hourly rate of £3.60 in the face of warnings from the Conservatives and business chiefs that it would lead to job losses. After he became Tory leader, David Cameron acknowledged the policy had been a success.

Below the line: How the scams work

* Restaurant and bar owners assume staff will receive a certain sum in tips and deduct the cash from their wages. There are also cases of managers deducting national insurance contributions from pay packets.

* Employees are paid piece rates rather than hourly rates. For example, hotel staff could be paid by the number of rooms they clean rather than the time spent doing the work.

* Staff are not paid for their time travelling between sites. This dodge most commonly applies to carers who are paid only for the time actually spent with the elderly in their homes.

* Employees are wrongly classified as volunteers and therefore not entitled to the minimum wage. Some companies class staff as interns but expect them to produce work equivalent to fully qualified employees.

* People are required to become self-employed and thus not subject to the minimum wage. This is illegal if the companies they are working for bear any losses they make.

* Companies charge staff for uniforms or benefits in kind, such as transport or meals.

* People are paid cash-in-hand so hours and wages go unrecorded. Employers thus dodge taxes and national insurance.

* Employers deliberately under-record hours worked, again limiting tax liabilities and enabling them to pay less than the minimum wage. Difficult to detect as the paperwork appears to be in order.

* Apprentices who are entitled to specific minimum wage rates depending on their age and experience are under-paid. Also staff are wrongly classified as apprentices.

Exploited: Victims' stories

Marianne Dickens, 43, Skipton, carer: "Last week I worked 54 hours and they paid me for 43.5"

I'm paid an hourly rate of £7.50, but when travel time between clients is factored in, I make a lot less. Last week I worked 54 hours and they paid me for 43.5. I drove 308 miles. I worked out one shift was paid at £4.81 an hour.

I am reimbursed 20p a mile for my travel, which is equivalent to the HMRC's authorised mileage allowance rate for travelling by bicycle. They recommend 45p a mile for a car like mine. It's 15 years old and the gearbox is going.

When I complained, I was told this is how it worked nationally. They'd paid staff for travel time the first year but realised they couldn't compete with other local contractors.

I estimate 80 per cent of carers in the private sector are in this position and 20 per cent in the public sector. I'm lucky I hold a GNVQ 2 in care. The people at my company without this are paid £6.70 an hour. On shifts like mine, this would run below £4 an hour.

Elizabeth, 25, Brighton, events worker: "In a busy month, we got £2.22 an hour"

I interned at a PR agency for over three months when I was 21, just after I graduated. There were five trainees, paid only £500 a month, for between 40 and 50 hours a week. In a busy month, that could work out at £2.22 an hour.

If you could bear to intern for free for a year, they would put you on these "trainee" contracts. The company consisted of three proper members of staff, five trainees and five or six interns. The trainees were signed up for 35 hours a week but were always expected to do overtime.

Giles, 37, London, unemployed: "I was making as little as £2 an hour"

I sold sandwiches to office workers last year from the back of a bike. I was told I had to be self-employed and order stock from the company daily. I would give them all the money – about £60 to £150 a day – and, depending on how much waste I had, they would pay me between 17 and 25 per cent of the profit at the end of the week.

I would work 9am-2pm and would only be making minimum wage if I was selling a lot and coming back with minimal waste. I was making as little as £2 an hour.

I had one training shift, where I went out on a round with a guy who'd been doing it for a while. When I factored in how much I was spending on travel, what I was taking home was measly.

I could only really have made money if I knew exactly what stock would sell and had my route worked out perfectly.

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