In this paper the author investigates firms' behaviour under minimum wage legislation and analyses the effect on employment and wages of different penalisation systems that may be used to enforce compliance with the law. In particular. he shows that additional fines imposed on repeated violations increase the degree of compliance among firms with no previous violations. Moreover, higher detection probability associated with more serious violations does not lead to full compliance but does result in higher wages. Thus, if the inspection efforts increase rapidly with the seriousness of the violation, then noncompliance may be reduced significantly.