I am an undergraduate (in electrical engineering) doing undergraduate research, so I'll answer based on my own situation and what I would want if I were in the same situation.
It's possible, if he isn't putting in his full effort, that he isn't very interested in the research project (maybe he had misconceptions as to what research was like in general, or found out that he isn't as interested in the field as he thought he was). I'm not sure if there's a lot you could do there. Perhaps he's lost sight of how his particular project fits into the big picture. I had that problem before, and feeling like I was an insignificant cog in the research machine certainly didn't help my performance (I found it helpful to discuss the research with my professor to revitalize my interest in the project and to get a better understanding of how my work fit in and was useful to the team).
On the other hand, it's possible that he is having some difficulties that are holding him back with his work that are discouraging him. Is it possible that there would be unforeseen issues with his project that would make it take more time than you thought? (Admittedly this is more unlikely--I and many of my coworkers would be inclined to work more hours at this point, but it can be disheartening I suppose).
If you want to avoid directly telling him to work more hours, consider increasing the frequency at which the students report their progress to you if necessary. Perhaps have them do a mini presentation every week on what they've accomplished. Some people find it difficult to keep slacking off if they feel like their slacking is making them look like they don't have much to show.
If you do choose to speak to him directly about his work hours, just be honest--he's being paid for full time work, so he needs to work full time. That's really not something a student who wants to learn would be offended by (perhaps he'd take a hit on his pride, but that's hardly your fault).
If you want to be less "in your face", perhaps you could get this point across by emphasizing that the summer is almost over, and so he should be giving it his all in the last few weeks. This should be especially easy if you plan on having one-on-one time with the students to discuss their progress. It could be something as simple as
"Hi there [student]. Based on your current progress with your project, I would strongly encourage you to spend more time working in the coming weeks to ensure that you're able to finish."
Emphasize that he's working on the project to grow as a researcher as well as help out, so he may need encouragement to put in more effort than he deems appropriate.
Finally, there could be nothing you can do at all. Perhaps he has things going on in his personal life that distract him from work. Perhaps he's just not interested in the research and only wants to do the bare minimum, and is only interested in working as many hours as he needs to do his work. If there is a way to fix that, it seems a direct, frank talk would be the only way to do so.