The Minimum Wage

The minimum wage in the United Kingdom was introduced after the election of the Labour government in 1997 and came into force in 1999. There is considerable debate as to whether a minimum wage is good or bad, economically speaking.

Justifications for a Minimum Wage

Many of the European Community member countries have a minimum wage, but it is not a statutory requirement. The northern countries of the EC, having a generally higher standard of living, and therefore higher labour costs, have lobbied for an EC-wide minimum wage to prevent southern countries from competing with lower wage costs.

The main benefits are that it offers a better wage to encourage people off the dole, which reduces the burden on the government and the taxpayer, and that there’s more money in the hands of low-paid workers, which feeds the economy. Also with competition based on wage differentials no longer possible, companies are forced to compete on the quality of their goods and services instead.

The opposite view is that it hurts small businesses and benefits larger ones, and lowers competitiveness. It also makes it harder for workers to be paid more than the minimum wage if they are asked to take on more responsibility. Another downside is that companies are tempted to move their operations to countries where wages are a fraction of those in the UK.

The Effect on Workers

From the worker’s point of view the minimum wage makes it easier to claim unfair treatment. Rather than having to show whether or not their wage is fair compared to other similar posts in a similar area, there is a hard and fast rule. If someone is paid less than the minimum wage, they can blow the whistle.

The minimum wage rates generally increase every year and as of 1st October 2007 they are:

• workers aged 16-17 -- £3.40 an hour
• workers over the age of 18 but under 22 -- £4.45 an hour
• workers over 22 -- £5.52 an hour

There are some exceptions; young workers who are on an apprenticeship scheme may be exempt from the minimum wage. There is also an accommodation offset rate of £30.10 per week (£4.30 per day) which workers may be allowed to claim.

For the employer there can be fines of up to £5,000 for refusing to pay the minimum wage or obstructing compliance officers. All employers must keep records of wages paid and if a case goes to court it is for the employer to prove that minimum wage has been paid, not the other way around. But in practice many workers are paid a lot less than the minimum.

Avoiding the Minimum Wage

One of the ways this is done is to keep workers under the government’s radar, by employing migrant workers or illegal immigrants. In some extreme cases these workers are kept almost as prisoners and, if their English is not good, they will not be aware of their rights.

Another way is to pay workers for what they produce, rather than by the hour. This is known as piece-work and the rate of pay for each piece of work should, by law, be equivalent to 120% of the hourly minimum wage rate. It is for the employer to perform tests to arrive at a fair work rate and then pay the right wage, but in practice many people doing this kind or work are vulnerable and will not complain for fear of losing income.

Know Your Rights

If you believe that you, or someone you know, is being paid less than the legal minimum, then there are a number of places where you can check it out. The DTI and Government’s websites have information, or there is a National Minimum Wage Helpline (0845 5000 678). The Helpline, as well as being able to advise, is also the place to report employers who are not doing the right thing.