Gudrun Limbrick says that employers shouldn’t treat minimum pay levels as the maximum pay level.

The idea of a National Minimum Wage (NMW) has been around for a long time and has actually been enshrined in law since 1909. In 1945, legislation established wages councils which took on the responsibility for setting minimum levels of pay in specific industries. Then when Labour campaigned to get into power in 1997, the party championed its policy of an NMW which would cover all industries and sectors and which became law in 1999.

The first universal minimum wage was set at £3.60 an hour. In 2016 a so-called National Living Wage was established for adults aged 25 and over. This was set to be higher than the NMW and from April 2018 is set at £7.83 an hour and projected to be £8.20 in 2019, £8.61 in 2020 and £8.89 in 2021. Levels under age 25 are age dependent. The UK is not the only country to have an NMW, the majority of countries have one making it one of the most universally accepted principles of employment, at least at legislative level.

The idea behind the NMW is a straightforward one. Without having to rely on collective bargaining or union strength, each worker is guaranteed a minimum level of pay regardless of their gender, ability, ethnicity, home circumstances, location, number of hours worked or the nature of the job they do. It is a broad-brush approach which levels the earning playing field.

However, there are two factors which means that it is open to abuse and this abuse is common. The first is that there is one issue that does mean that all employees are not all equal — and that is age. Under the age of 25, different minimum levels are applicable to employees of different ages. The second is that it offers only a single minimum level and does not dictate what should happen as time passes.

A cautionary tale

The situation in one small company was brought to my attention recently and serves as a useful depiction of how the NMW principles can be abused while operating entirely within the law.

A young man, two months shy of his 21st birthday, is working in a pizza shop. As he is aged over 18 but under 21, he is currently earning the minimum wage rate of £5.90 an hour. He has worked at the pizza shop for three years and, in terms of the length of time he has worked there, is the most experienced employee.

Aside from the manager, the staff team are all employed at the same level and do the same variety of tasks on each of the production, sales and delivery aspects of the business. However, as our employee is so experienced in comparison with the other members of the team (including the manager), his employers rely heavily upon him, unofficially, to show the other employees the ropes and know what to do in case of problems.

The issue is that all the team members are paid the minimum wage applicable to their age and, as team members currently include people who are aged over 25, this means that there is a pay difference of £1.93 an hour. This amounts to more than £72 over a full-time week for the same work but a much greater level of experience, merely because of age.

When our employee asked for a pay rise commensurate with his experience, he was told that it was company policy to pay minimum wage. With a shortage of jobs for young people in this small place, the employee was unable to “vote with his feet” and thus remains in the job, earning less than his colleagues doing the same job of work. Otherwise, the employer would be in danger of creating a high turnover of staff as those who were experienced moved on to better paid work.

The benefits of a National Minimum Wage

Based on the assumption that the minimum is set at an appropriate level for both employers and employees:

  • a level playing field in aspects in which discrimination might exist

  • a clear message to employers that they must meet a specified minimum or risk prosecution

  • potential equality for all starter employees

  • on a wider level, a minimum wage can reduce poverty.

The disadvantages of a National Minimum Wage

  • Having different levels for young people of different ages can mean that young people are not rewarded for the experience they gain.

  • Employers can treat the minimum as a maximum and fail to increase pay as employee gathers experience.

  • The broad-brush stroke means that the same level of pay applies to all jobs regardless of factors such as the difficulty of the role, its dangers or the experience needed by the individual or the expense of housing in the area.

  • It limits employers’ ability to decrease their staff bill (beyond the minimum level) at times when the supply of potential employees exceeds demand.

  • On a wider economy level, having a staff bill with a set minimum can make a company uncompetitive, or may result in inflation (although smaller employers have had their National Insurance discounts increased to compensate for the higher costs of the National Living Wage (NLW)).

  • It is possible that companies not wanting, or unable, to pay the minimum wage may resort to unofficial and illegal ways of taking on workers.

Going beyond the minimum

When the NLW was introduced in 2016, a higher voluntary level was also championed by the Living Wage Foundation. This has been calculated to reflect the actual living costs of employees. Currently, the voluntary rates are £8.45 an hour, and £9.75 for London. However, only around 4400 companies have signed up for these higher levels.

As a piece of legislation, the National Minimum Wage Act is only as effective as the number of prosecutions which ensure that companies toe the line. In 2016, there were media reports which said that prosecutions were unacceptably low in relation to the non-payment of the minimum wage. It was reported that 700 employers had been named by HM Revenue and Customs (HMRC) as paying less than the appropriate minimum wage but there had only been three prosecutions.

In 2017, HMRC introduced an online complaints service so that workers could register concerns that they were not being paid the sufficient amount. There has since been an increase in the number of such complaints and also an increase in the amount of money investigators have found owing to employees and in the number of employees affected.

In the year 2017/2018, HMRC found that £16 million was owed to more than 200,000 employees, in comparison with £11 million owed to 98,000 workers in 2016/2017.

The problem with setting minimum wage levels can be that it sets a level for employers to meet and discourages some from going beyond that. A minimum wage level that is based on age (for young adults) enshrines age discrimination in law. While there is active campaigning for setting higher minimum levels for all, this does not help the issue of companies abusing the system within the law, ie sticking to the minimum regardless of the experience the worker brings, and the value of the work they do.

Last reviewed 25 September 2018