Last week, the Department for Business and Trade issued a press release naming and shaming more than 500 UK employers for failing to pay the minimum wage. Those employers named by the UK Government include major UK brands, and in one instance alone, employees at one organisation were short-changed by more than £5 million.
If we look at similar data shared by the Government previously, we can see that actually this problem appears to be getting worse. In 2021, 191 employers were named for failing to pay £2.1 million to 34,00 employees. This means in just a few years, the issue of underpaying employees in the UK has doubled. But the impact of these underpayments reach much further than just the bank balances of those affected.
Unfair, inaccurate and late pay is a wellbeing issue
Although there is no research looking at the direct impact of these specific underpayments on employees, many studies have shown that when an employee has insufficient income, it is associated with worse outcomes across almost every area of wellbeing, including life expectancy.
More than 30% of the reasons employees were underpaid in the UK was that they simply weren’t paid for the work they did. The risk of having poor mental health is disproportionately high for low paid workers. In addition, low paid workers are those most likely to be suffering due to the current recession and cost of living crisis.
80% of people said they “would not use” the services of a business if they found out it paid less than NMW.
Low pay is a wellbeing issue
Examining the various increases in the national minimum wage (NMW) in the UK from 2016 to 2018, researchers have concluded that increases in the NMW have a significant impact on employee mental and physical wellbeing. From the research I have digested, I am confident that paying people fairly, accurately and on time is a wellbeing issue and therefore we must try harder to stop this increasing trend of underpaying people.
How can we stop this from happening?
Putting to one side the morality of paying people what they are owed, this wide scale failure to pay people is impacting organisations as well. Underpayment of wages has been found to result in lower levels of employee satisfaction and increased absence rates and turnover.
In addition, this type of underpayment affects consumer behaviour. In research from the Department for Business, Innovation and Skills 80% of people said they “would not use” the services of a business if they found out it paid less than NMW. A massive 90% of UK consumers actually called these businesses “a disgrace”.
While the reasons why an employee isn’t paid accurately can be fairly complex, if we examine the data shared by the Government, we can start to understand why so many employees have been underpaid. One of the biggest reasons was because employers are making deductions that push employees below NMW.
The technology employers use is critical to protecting workers – and themselves
In more than a third of cases, employers deducted pay from their workers’ wages that took them below the minimum wage. For example, where employees entered into salary sacrifice arrangements for benefits like company cars, childcare vouchers, or cycle to work schemes. However, employees can’t enter into agreements like these that result in their pay being reduced below National Minimum Wage (NMW).
Technology providers in the benefits space tend to have smart systems in place that will check for NMW when offering salary sacrifice arrangements to prevent this from happening. This kind of technology is designed to protect workers and employers from making erroneous deductions.
When we underpay people or make errors in their pay, it sends a signal to our employees that we don’t care.
Employers should also ensure that the payroll technology they are using is fit for purpose too as this is another area where many mistakes occur, when technology should really be preventing them. Back in 2022, the impact of pay mistakes made the headlines in the UK when it was revealed that underpayments meant employees were skipping meals they couldn’t afford.
According to research by Zellis, 90% of employers have reported discrepancies or lateness in their pay. The impact of these errors directly impact the financial stability to the employee. More than a third have said that errors in their pay have led to missed direct debits, employees entering overdrafts and incurring interest and bank fees.
Long lasting impact of mistakes in pay
The 500+ UK employers that were found to have failed to pay their people nearly £16 million led to more than 172,000 workers being out of pocket. While the businesses named in the February press release have now paid back what they owed to their staff and have also faced financial penalties, I worry about the long-lasting impact of these mistakes.
When we underpay people or make errors in their pay, it sends a signal to our employees that we don’t care. While no doubt unintentional when employers do this during the worst cost of living crisis in recent memory, when 40% of the country is living pay check to pay check, we risk pushing our people over the edge.
Effective workplace wellbeing starts with ensuring the employer is not the cause of poor wellbeing. For more than two decades I have worked in HR technology and have seen first-hand that it significantly reduces human error and can help to safeguard against errors like these happening.
