Enforcing the Issue: Solutions for Labour Market Enforcement in 2023

Earlier this week, the Resolution Foundation published their report “Enforce for Good”, setting out their conclusions from a 4 year project exploring the current labour market enforcement landscape in the UK. As part of the launch of this report, our own Kate Shoesmith was invited to speak on a panel about the current issues preventing effective labour market enforcement.

We want to shape the UK labour market to be the most effective and efficient it can be, and having a strong and fair enforcement system is a crucial part of this. There are some key points that we think need to be addressed when trying to build a system fit for the modern UK labour market.

First of all, it is clear to the REC that the majority of employers want to do the right thing. Treating workers with respect is in businesses best interest. Luckily for workers and less so for bad employers, we have the added scrutiny of social media and workers have choices of where and how to work because of significant labour shortages. Intentionally mistreating workers makes no sense and many businesses do seek to go above and beyond minimum compliance requirements. This is clear from the standards to which we hold our own membership – joining the REC is not easy, with our Code of Professional Practice and Compliance Assessment setting higher standards than the law for ethical practice in the industry.

Linked to this is the need to make the distinction between unintentional errors and wilful, malicious disregard for the law. For example, looking at the list of employers ‘named and shamed’ by HMRC for breaches of National Minimum Wage (NMW) it is easy to see the difference between accidental non-compliance and intentional and consistent underpayment on NMW. On holiday pay in particular, it can be difficult to accurately calculate the correct payments due to the confusing and unintuitive calculation processes that have been subject to legislative interpretation and sometimes confusion due to iterative changes in case law. Even marginal underpayments of a few pence are still wrong, and workers should get their full entitlements, but employers with the best intentions to pay their workers their full holiday entitlement can easily slip up and make an error in the maths when it comes to these calculations.

Fortunately, the Resolution Foundation’s report offers a number of solutions that the REC also endorse to make improvements in the enforcement system. Allowing the existing enforcement bodies to operate effectively and enforce the rules we do have is crucial. These organisations need to be properly funded and resourced. The seemingly mythical Single Enforcement Body, first proposed in 2019, finally coming to fruition would have the potential to make a real difference in this area.

There are also common issues that fall outside of the current enforcement framework. Umbrella companies are not regulated by the Employment Agency Standards Inspectorate (EAS), nor do they have an enforcement body of their own. Introducing regulation for umbrellas and bringing them within the remit of EAS would help to address common non-compliance issues that tend to be driven by umbrellas, including tax avoidance schemes, unlawful deduction of wages, and ‘phoenixing’ to avoid liability for any problems.

This also applies to the gig economy. The gig economy is no longer a new phenomenon - Uber launched in the UK in 2012, Deliveroo in 2013 – but employment law in the UK has not been modernised to reflect the growth of these practices. Government not only needs to introduce specific legislation to fit this model, rather than shoehorning them into existing employment law, but also needs to commit to acting swiftly when future new working practices come to the fore.

Employers need to be provided with information to ensure everyone is kept informed and safe. REC’s previous work with the TUC to clarify worker rights was well received by the Citizen’s Advice Bureau but information like this needs to reach a broader audience. The Resolution Foundation’s report highlights the fact that only 7% of workers would go to ACAS if they had a compliance issue. The REC are big advocates for the role that ACAS play but if workers are unaware of how to enforce their rights this a fundamental flaw in the system. More needs to be done to make workers aware of not only their entitlements but also how they can enforce them if we are to see change.

We find ourselves in an unusual situation currently, where it is businesses and business representatives, like the REC, that are the ones calling for better enforcement. Improving the quality of the UK labour market is crucial for the future of the UK economy. There are potential solutions available to the government, they just need to take decisive action taken and implement them.