New RF analysis: underpayment of the minimum wage is on the up – and planned future increases can only increase the risk of even more firms falling foul of the law. 
Firms can be subject to a range of civil and criminal penalties if they are caught but the maximum magnitude depends on how underpayment comes to light.
In reality, maximum sanctions are rarely applied. Although HMRC has recovered significantly more arrears for workers and imposed more penalties in recent years, the average penalty levies in 2017/18 was equivalent to 90 per cent on arrears owed.
Financial sanctions must go hand-in-hand with high detection rates to give firms a hard, incentive to pay the NLW/NMW. Even if a firm believes the maximum penalty will be levied, it would have to believe it had a 1-in-3 chance of being caught to have an economic reason to comply.
In practice, we estimate that underpaying firms had, at the very most, a 13% chance of detection by HMRC in 2017-18.
There’s a real balancing act to be struck between higher rates of detection and larger penalties – but it’s clear the government has yet to find the combination that gives firms an economic reason to pay the minimum wage.
HMRC’s resources have been substantially increased in recent years, boosting their ability to detect underpayment. But the data suggests this has still not been sufficient to stave off increased underpayment.
Read more in today's report 'Under the wage floor' by Lindsay Judge & @annastansbury, supported by
@UnboundPhilanth: resolutionfoundation.org/publications/u…
@UnboundPhilanth: resolutionfoundation.org/publications/u…
