Publicly naming and shaming firms who are underpaying staff is effective but more needs to be done to prevent this practice.
A report by the Resolution Foundation shows that the Government’s “naming and shaming” of businesses failing to adhere to Minimum Wage Laws does act as a deterrent.
However, it admits the impact is small and only works in sectors where detection rates are already very high – for example big businesses.
The National Minimum Wage Naming Scheme was set up to “increase awareness of National Minimum Wage Legislation” and “to act as a deterrent to the minority of employers who may be tempted to underpay their workers”.
The Foundation reported that while minimum wage workers in micro-businesses are over a third (37 per cent) more likely to be underpaid the minimum wage compared to those in the largest businesses – they are less likely to get caught and named for doing so.
Big firms can defend themselves
Similarly, big companies who are named and shamed by the Government are often very equipped to manage the effects of bad press, making the strategy of publicly shaming the company less effective.
The Foundation’s research also found that naming and shaming is much more likely to be effective with small businesses who need to maintain a positive reputation in order to keep their company afloat.
Businesses were shown to most fear the effect that reputational damage could have on their relationship with other firms in their supply chain who might be reluctant to work with them after hearing negative reports.
As such, the research determined that increasing the impact of a reputational hit on non-compliant firms matters because the Government has said it will not increase the financial penalties imposed on businesses when they break labour market rules.
What can be done?
In light of this, the report recommends the Government to adopt a multifaceted approach to the issue, including:
- Strengthening and raising the profile of the existing ‘naming and shaming’ policy
- Complementing this policy with more rigorous enforcement, to increase the chances of rule-breaking firms being uncovered in the first place
- Introducing tougher financial penalties, to further minimise the incentives for breaking the rules
Hannah Slaughter, Economist at the Resolution Foundation, said:
Reputation matters for businesses, and the Government should raise the profile of its welcome work to ‘name and shame’ those breaking minimum wage rules.
However, naming dodgy firms only works when they are caught in the first place, so more widespread enforcement is needed. And fines are currently too low so there is little economic incentive for rule-breaking employers to change their ways.
As well as raising the profile of the ‘naming and shaming’ regime, the Government must introduce tougher financial penalties and more widespread enforcement to ensure that rule-breaking firms are caught and deterred.
* This research has been documented in the Resolution Foundation’s new report ‘No shame, no gain?’, published in November 2021.