Crackdown on breaches of minimum wage law

Since May 2007, the Labour Inspectorate has had the authority to impose fines on employers who pay their employees less than the statutory national minimum wage. This follows amendments to the Minimum Wage and Minimum Holiday Allowance Act, which aim to improve compliance with the act. Up to now, employees had to take formal action themselves in order to address the problem of low wages; in practice, few did so.

Compliance enforced by law

With effect from 4 May 2007, the Minimum Wage and Minimum Holiday Allowance Act (Wet minimumloon en minimum vakantiebijslag, WML (in Dutch)) has been amended with the objective of improving compliance with the Act. The Labour Inspectorate (Arbeidsinspectie), which forms part of the Dutch Ministry of Social Affairs and Employment (Ministerie van Sociale Zaken en Werkgelegenheid, SZW), now has the authority to impose fines on employers who pay their employees less than the statutory national minimum wage.

Prior to this change in legislation, individual employees were primarily responsible for ensuring enforcement. An underpaid employee could either initiate direct civil action against their employer or first lodge a complaint with the Labour Inspectorate, which can, if underpayment continues, be followed by civil action against the employer. In addition, the Labour Inspectorate carried out studies into the general level of compliance with statutory obligations. This took the form of a so-called monitor study, which was conducted once every two to three years.

Varying levels of underpayment

The most recent monitor study dates from October 2004. At the time, an estimated 36,000 employees earned less than the statutory minimum wage – 0.6% of all employees. Compared with the figure for 2001 – 1.1% – this reflects a downward trend. The gross wage of underpaid employees is on average 13% lower than that to which they are legally entitled. Furthermore, the level of underpayment can vary greatly: over a quarter of employees are underpaid by less than 5%, over half are underpaid by between 5% and 20%, while the remainder are underpaid by 20% or more. Underpayment is most prominent among women and young people working part time, employees with a healthcare or service function, employees in small businesses, and employees in the retail trade, repair and leisure sectors.

Unwillingness to complain

Although studies have shown the ongoing practice of underpayment, employees have made little or no use of the possibility to file complaints with the Labour Inspectorate or take civil action against employers. Very few complaints – an average of six a year – were registered in the period up to 2007. Apparently, most employees find the prospect of personally filing a complaint against their employer too daunting.

The fact that employees were required to themselves approach the court to claim overdue wages acted as a barrier to more actions being taken. In a number of cases, employees indicated that the benefits would be too low in comparison with the time and energy involved on their part. It was expected that employees from the central and eastern European countries would be even less inclined than their Dutch colleagues to file a complaint with the Labour Inspectorate or to initiate civil action on grounds of underpayment: however low the wages, they would always be higher than what they could expect in their country of origin.

Against this background, it was decided to enforce the WML through penalties, in line with the approach taken in the Working Hours Act (Arbeidstijdenwet) and the Working Conditions Act (Arbeidsomstandighedenwet).

Initial focus on sectors with high immigration

It appears, from the Explanatory Memorandum, that the Labour Inspectorate intends to launch its supervision of compliance with the WML as a part of its already established routine of inspections of compliance with the Act on Employment of Foreigners (Wet arbeid vreemdelingen). These inspections focus mainly on those sectors in which unfair competition on wage costs is common, such as agriculture, construction and also in manufacturing companies that make substantial use of manual labour.

Robbert van het Kaar, Hugo Sinzheimer Institute (HSI)

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