Thousands of nursery workers are being paid below the National Living Wage even though their employers receive Government funding through childcare vouchers and subsidies for parents, a report claims.
The Family and Childcare Trust said up to 20,000 staff in private and independent nurseries in England were not receiving the statutory £7.20 an hour for adult workers.
An analysis by the charity of official data showed that 10% of nursery workers were not receiving the living wage even though they qualified because they were over 25 years old.
The charity pointed out that a number of childcare providers had recently been subject to enforcement action by HM Revenue and Customs for non-payment of the minimum wage.
Ellen Broome, deputy chief executive of the Family and Childcare Trust, said: "Nursery workers care for and educate the next generation and this important role deserves decent pay, but instead they are being exploited and paid illegal poverty wages.
"This cannot be right. Central and local government must act immediately to make sure that every childcare worker is paid a decent wage and that taxpayers' money does not go to employers who break the law.
"High quality childcare does not come on the cheap.
"Paying staff at least the minimum wage will help make sure children get the high quality care that sets them up for school and improves their long-term outcomes."
Neil Leitch, chief executive of the Pre-school Learning Alliance, said: "We're very clear that no childcare provider should be paying their employees less than the national minimum or living wage, and it is of course right that any instances of this happening are investigated and dealt with appropriately.
"However, we completely reject the claim that such breaches are happening on anywhere near the scale that the Family and Childcare Trust are suggesting, and our analysis of the same Department for Education data indicates that any such suggestions are both misleading and irresponsible."
Unison's head of education Jon Richards said: "Students study for two years to become nursery workers, yet remain the lowest paid of all the professions.
"It's not just insulting to pay them such low wages, but it's also unlawful to deny them the basic minimum.
"Such low pay doesn't go anywhere near reflecting the responsibility they take on caring for our children."
A Government spokesman said: "Nurseries are legally required to pay workers the National Minimum or Living Wage and, just as with any other business, risk fines or even prosecution if they do not.
"Our model agreement clearly sets out that if providers do not comply with their legal obligations, councils can terminate their funding to deliver our childcare offers.
"Our record investment in childcare includes an extra £1 billion per year by 2020 to pay for the entitlements and £300 million to lift the hourly rates paid to providers.
"These rates were based on our Cost of Childcare Review, which took into account current and future cost pressures, including the minimum wage."
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