Introduction of fines to prevent underpayment of minimum wage, Netherlands

About

Country: 
Netherlands
Target Groups: 
employers/purchasers

On 4 May 2007, the Law on minimum wages was changed by the introduction of the possibility to levy administrative fines in cases where employers pay (some of) their employees less than the legal minimum wage. The maximum fine per offence (per employee) is €6,700. At the same time, the number of staff employed at the Labour Inspectorate was increased to allow more inspections to be carried out.

Background

Since 1969, the Netherlands has had a legal minimum wage. On 4 May 2007, the Law on minimum wages (Wet minimumloon) was changed by the introduction of the possibility to levy administrative fines in cases where employers pay (some of) their employees less than the legal minimum wage. Until this change took place in 2007, it was left to individual employees to choose whether to proceed to court when they did not receive at least the legal minimum wage. According to the Labour Inspectorate (Arbeidsinspectie), 0.6% of all employees received less than the legal minimum wage in 2007, down from 1.1% in 2001. The Dutch cabinet feared, however, that with a massive inflow of employees from the new EU Member States, the problem could escalate in the coming years. Moreover, the cabinet expected that the probability for these new employees to take matters to court was even lower than for their Dutch counterparts.

Therefore, the cabinet believed that a new legislative instrument should be introduced, namely an administrative fine, to guarantee a minimum level of compliance among employers. This instrument was already in use within other labour laws. It presupposes active control by the Labour Inspectorate, instead of relying only on steps taken by individual employees. The revised Law on minimum wages entered into force on 4 May 2007.

The main actors involved include:

  • the Dutch legislator;
  • the Labour Inspectorate;
  • the social partners if they request the Labour Inspectorate to start investigations in a certain industry, because they expect non-compliance with either the law or the collective agreement in force.

Objectives

The main objective of introducing the instrument of the administrative fine is to curb the number of offences by employers who pay less than the legal minimum wage. The initiative aims to concentrate on sectors of activity where the incidence of underpayment is traditionally high, such as agriculture, food and catering, and construction, and on employees that are relatively more at risk of being underpaid such as employees from the new Member States.

Specific measures

  • Adding a new chapter to the Law on minimum wages.
  • Increasing the capacity of the Labour Inspectorate.

Evaluation and outcome

Achievement of objectives

It is still too early to draw firm conclusions on the achievement of the objectives. In its Annual Report 2007, the Labour Inspectorate highlights that it combines the monitoring of the Law on minimum wages with the monitoring of the Law on foreign employees (Wet arbeid vreemdelingen). In 2007, the inspectorate has issued four so-called ‘fine reports’ on the Law on minimum wages. One case of violation has since been completed. The other 70 suspected violations were due to be processed in 2008.

Obstacles and problems

It has proved rather difficult to trace and prove underpayment by employers.

An unexpected phenomenon was that underpayment sometimes takes the form of having to work too many hours to receive the legal minimum wage. The Ministry of Social Affairs and Employment (Ministerie van Sociale Zaken en Werkgelegenheid) has emphasised that this practice also qualifies as underpayment.

Lessons learnt

It seems that upholding the Law on minimum wages is more labour intensive than upholding the Law on foreign employees. Therefore, the Labour Inspectorate received an additional 24 full-time equivalent employees in 2008. With these new staff members, the inspectorate will start to carry out additional control activities on minimum wages for employees from the new Member States to find out if these are more effective than the combined controls mentioned earlier.

Impact indicators

In 2007, the Labour Inspectorate initiated 10,931 investigations, under the combined scope of the Law on minimum wages and the Law on foreign employees.

According to research conducted in 2006, some 0.6% of all employees (36,000 employees) received less than the legal minimum wage in 2004.

It is too early to make reliable estimates of costs and benefits of the measures implemented by the Labour Inspectorate.

Transferability

The main aim of introducing administrative fines is to increase the compliance rate of employers with the Law on minimum wages. It is possible to look at the concept of transferability in two ways:

  • across countries – this is conditional on the existence of either a legal minimum wage or a minimum wage agreed in collective agreements;
  • within the legal system – this is in fact what happened in the Netherlands. The system of administrative fines was already in existence in the Law on foreign employees, the Law on working conditions (Arbeidsomstandighedenwet) and the Law on working time (Arbeidstijdenwet)

Contact

Labour Inspectorate (Arbeidsinspectie), Website: http://www.arbeidsinspectie.nl/

Further information

Labour Inspectorate (Arbeidsinspectie), Jaarverslag 2007 [Annual Report 2007].

van het Kaar, R.H., ‘Wet minimumloon en minimumvakantiebijslag’, in: Popma, J.R. (ed.), Het recht op veilige, gezonde en waardige arbeid. Arbeidsbescherming tussen publiek en privaatrecht, Nieuwerkerk aan den Ijssel, Gelling Publishing, 2008, pp. 185–197.

van het Kaar, R.H., ‘Wet minimumloon en minimumvakantiebijslag’, in: van der Heijden, P.F., van Slooten, J.M. and Verhulp, E., Teksten Commentaar Arbeidsrecht, Deventer, Kluwer, 2002, pp. 493–520.

Robbert van het Kaar, Hugo Sinzheimer Institute (HSI)

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