Failing to pay the national minimum wage a PR disaster for UK firms

John O'Hanlon
- Leadership - Mar 05, 2015

Kim Hoque, Professor of Human Resource Management at Warwick Business School (WBS) says there are sound financial, as well as ethical reasons for complying with minimum wage legislation: “Being included on a list of ‘rogue employers’ could well send a signal to the labour market that these are not good companies to work for,” he says. “If they lack the capability to ensure adherence to minimum wage laws, they may also lack the capability to ensure that employees are properly trained and developed, are provided with suitable career opportunities and are provided with interesting and rewarding jobs. This may affect the firm’s ability to recruit not just to jobs at the lower end of the organisation, but to positions higher up also.”

“Another positive step is that the government is to increase the maximum fine within the Small Business, Enterprise and Employment Bill, currently progressing through parliament, from £5,000 to up to £20,000. Importantly, the new law will fine firms for the number of employees that are underpaid rather than for each infringement. Had this legislation already been in force when H&M was found to be in breach of the law last month, it could have been fined as much as £10.8 million.

“Also important is the role that HMRC is playing in the care sector in raising awareness of the minimum wage with employers and care workers. As a part of this, HMRC might also usefully seek to emphasise to firms the benefits of paying the minimum wage and that it need not simply represent a cost.

“For example, if employers pay higher rates, the additional costs involved will be offset by lower quit rates, lower absenteeism rates and higher levels of workforce motivation. Paying workers properly will also have a positive effect on commitment, which in turn will reduce monitoring and supervision costs and raise productivity. A more rigorous enforcement of the rules also has the potential to encourage employers to invest in training in order to raise workforce productivity, and it may also stimulate employers to organise work processes more effectively.”

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