The UK’s fragmented, weak and under-resourced system for enforcing labour market rights costs workers billions a year and needs a radical overhaul, according to new Resolution Foundation research.

Enforce for good – the final report of a four-year project on labour market enforcement, supported by Unbound Philanthropy – examines the scale of non-compliance with labour market rules and how the current system of UK enforcement needs to change to address this.

The report notes that there have been some improvements in workers’ rights over recent decades – including a fast-rising minimum wage. But these rights are "not worth the paper they are written on" if they are not enforced – and too many firms are flouting them, causing financial harm to often low-paid and vulnerable workers.

Labour market violations are widespread with 900,000 workers reporting they had no paid holiday – costing these workers £2bn per year – and 1.8 million saying they do not receive a payslip, both rights by law. (The Working Time Regulations state that all workers have a legal right to 5.6 weeks (or pro rata in line with part-time working arrangement) of annual leave.) The latest estimates suggest that almost one-third (32%) of workers paid at or around the minimum wage floor are underpaid, by an estimated £255m per year.

These violations are significantly more concentrated among low-paid workers, with minimum wage underpayment by definition affecting the lowest-paid workers. The lowest-paid workers are also six-times as likely to report receiving no paid holiday compared to the highest-paid (14 versus 2.5%).

Those in insecure work or from ethnic minorities are also more likely to experience labour market violations. Close to three-in-ten (29%) workers on a zero-hours contract report they have no paid holiday, something that is twice as likely to affect Bangladeshi compared to white workers (nine versus four per cent).

The Foundation says that as well as helping workers, cracking down on these violations is important for the economy, encouraging fair competition and preventing a minority of firms from unlawfully undercutting the vast majority of good businesses.

However, it warns that the current enforcement system is too fragmented and weak to respond to the scale of non-compliance, far too often putting the onus on workers to protect their own rights through a lengthy Employment Tribunal (ET) process.

Labour market enforcement is currently shared across six bodies, as well as local authorities, resulting in a lack of joined-up working, and contributing to poor knowledge of how to access help.

The system’s ‘compliance-first’ approach also means that enforcement bodies generally apply minimal penalties – if any – to deter poor behaviour even when abuse is detected. Two-fifths (41%) of national minimum wage (NMW) arrears owed to workers as a result of underpayment in 2021-22 faced no penalty. Penalties – when applied – total just one-times the arrears if paid promptly by UK firms, compared to 2.2 times in Ireland and 2.6 times in the Netherlands.

Overall enforcement spending has flatlined in real terms since 2014, with a total spend equivalent to just £10.50 per worker in 2022. Consequently, Britain has just 0.29 labour inspectors per 10,000 employees (less than a third of the ILO’s benchmark of one per 10,000), ranking 27th out of 33 OECD countries.

The lack of effective state enforcement has resulted in individuals being left to resolve their own disputes. But low-paid workers – those most exposed to labour market violations – are the least likely to take their case through to an ET, with just 12 out of every 10,000 low-paid workers making an ET application in 2012-13 (when there were no fees) compared to 18 out of every 10,000 high-paid workers.

Given the scale of the challenges facing the current enforcement system, the Foundation argues that a radical new approach is required. This should include:

• A strong Single Enforcement Body (SEB) to cover all worker rights except those reserved to the Health and Safety Executive (HSE) and the Equalities and Human Rights Commission (EHRC). It should have new powers to enforce rights to sick and holiday pay, saving workers from lengthy ET cases, and exemplify social partnership with both workers and firms on its board.
• A new ‘super-complaint’ process where designated worker and business bodies can raise systemic labour market violations with the SEB. This would adapt the approach currently used to protect consumers, with the SEB empowered to review the problems raised, change policy and guidance in response and make recommendations to government.
• Doubling the number of labour market inspectors and fines for failing to pay the minimum wage (to four-times the arrears owed).
• Tackling the Employment Tribunal backlog and ensuring enforcement of awards.

Lindsay Judge, Research Director at the Resolution Foundation, said:

“A minimum wage, paid holiday from day one, safe working conditions and non-discrimination in the workplace, are all basic standards that workers are entitled to in the UK today. But these rights are not worth the paper they are written on if non-compliant employers are not identified and required to make good any wrongs that they do. Britain’s fragmented and weak system of enforcing labour market rights is costing workers billions a year and doing too little to prevent good firms being undercut. It is time to make workers’ rights a reality, with a Single Enforcement Body and new ‘super complaints’ that protect workers. We should double both the number of labour market inspectors and the fines that are awarded when they find workers have been mistreated."