Regulations covering minimum wages and statutory pay apply to almost every business.
It is illegal to pay less than the National Minimum Wage (NMW) or National Living Wage (NLW), so you need to be clear about your responsibilities to minimise disruption and prevent disputes arising.
This briefing covers:
- National Minimum Wage.
- National Living Wage.
- Statutory maternity, paternity and adoption pay and maternity allowance.
- Statutory shared parental pay.
- Statutory sick pay.
1 The minimum wage
1.1 Almost all workers are entitled to be paid at least the National Minimum Wage (NMW)or National Living Wage (NLW). The hourly rates are:
- £7.20 for employees aged over 25.
- £6.70 for those aged between 21 and 25.
- £5.30 for those aged 18 to 20.
- £3.87 for those aged 16 and 17 (except apprentices).
- Apprentices aged under 19, or over 19 but in the first year of an apprenticeship, are entitled to a NMW of £3.30.
- Freelance and temporary workers are entitled to the NMW or NLW applicable to their age.
1.2 The average pay must be at or above the minimum wage for each ‘pay reference period’.
- The reference period is the worker’s actual pay period, up to a maximum of a month.
- Premium payments (eg overtime at time-and-a-half) cannot be included when calculating the minimum wage. Only the standard hourly rate can be counted.
1.3 Hours worked will depend on the type of work the worker does.
- For waged workers, the hours are usually clearly stated.
- For salaried workers, hours are usually a set number of basic hours per year.
- Travel time between home and the first and last client of the day now counts as working time for employees with no fixed place of work (such as care workers where they work in clients’ homes). You should check if this impacts the hours, rest periods and pay of any of your workers.
1.4 Workers who sleep on the premises need not be paid the minimum wage for any period when they are not actually working, provided that:
- The employment contract clearly sets out the period when the worker is permitted to sleep, and the employer provides suitable sleeping facilities.
1.5 The value of most perks cannot be included when calculating the NMW and NLW.
- The value of free accommodation can be included, but only up to a value of £37.45 a week.
- The value of perks which can be freely exchanged for money, goods or services is included (eg incentives and bonuses).
- Tips do not count, unless collected by the employer and paid through the normal pay system.
1.6 There is no opt out from the NMW and NLW.
- Workers cannot agree to be paid less.
- Workers must be paid the correct rate, no matter how poor their performance is.
- Dismissing a worker to avoid paying the correct rate is automatically unfair.
- Company directors must be able to show that they pay themselves the rate applicable to their age.
1.7 You must keep adequate records to prove you are paying the correct rates.If workers suspect they are underpaid, they can request, inspect and copy any records to establish whether you have or not.
- You must respond within 14 days.
- Records don’t have to be kept in a specific format. If most of your employees are paid well above the minimum wage, your PAYE records may be sufficient.
- In case of dispute, you will have to prove that you have paid NMW or NLW.
1.8 The NMW and NLW are enforced by HM Revenue & Customs (HMRC).
- HMRC can demand records, enter premises and interview employees.
- It may detect breaches in your PAYE returns.
- Failing to keep adequate records, keeping false records, and obstructing an enforcement officer are all separate criminal offences. You could be liable to a penalty of up to £20,000 for any of these offences.
- Employers that breach the minimum wage will have to pay arrears within 14 days and a penalty equal to 200% of the unpaid wages owed to workers (100% of the unpaid wages for pay periods which began before 1 April 2016) up to a maximum of £20,000 per worker. If the employer still fails to pay, they risk prosecution and an additional fine.
2 Maternity pay
Many women on ordinary maternity leave are entitled to statutory maternity pay (SMP).
2.1 To qualify for SMP, a woman must have completed 26 weeks’ service by the end of the 15th week before the week the baby is due. This is known as the ‘qualifying week’.
- She must earn at least £112 per week in the eight weeks up to and including the qualifying week.
- She must still be pregnant, or have had her baby, by the 11th week before the expected week of childbirth.
- She must have stopped working, or taken ordinary maternity leave.
- She must have provided evidence of the expected date of birth.
2.2 There are two rates of SMP.
- SMP is equal to 90% of her average weekly earnings if more than £139.58 per week for the first six weeks.
- It is then paid at £139.58 per week or 90% of her average earnings if lower for up to 33 more weeks. These rates are not increased in the case of multiple births.
- SMP has to be recalculated if a pay rise takes effect during the maternity leave.
2.3 Employees not entitled to SMP may qualify for maternity allowance (see 3).
2.4 The Government compensates employers for making statutory payments to new parents.
- Small businesses can claim back 103% if their total annual combined NI payments is £45,000 or less.
- Larger employers can reclaim 92% of the gross amounts paid.
- Amounts are claimed back by making deductions from the NICs payable to HMRC.
You must maintain detailed records and keep them for at least three years.
2.5 SMP stops if the employee is taken into custody, or dies.
- Mothers can work for ten days during maternity leave (known as ‘keeping in touch days’) without it affecting their right to SMP.
2.6 Some employers offer enhanced maternity pay to some of their female employees.
3 Maternity allowance
3.1 Maternity allowance (MA) is paid by Jobcentre Plus and is based on the woman’s recent employment and earnings record.
- Self-employed and recently employed women who do not qualify for SMP, may qualify for MA.
- These include women who earn between £30 and the lower earnings limit a week and have been employed or self-employed for at least 26 weeks of the 66 weeks ending with the week before the expected week of childbirth.
- They must earn on average at least £30 per week.
3.2 MA is paid for a maximum of 39 weeks at £139.58 per week or 90% of average weekly pay if lower.
Visit the GOV.UK website at www.gov.uk/maternity-allowance/overview.
4 Paternity pay
4.1 Fathers (or those with responsibility for bringing up children) are entitled to paid time off. Employees entitled to paternity leave are also entitled to statutory paternity pay (SPP).
- SPP is for either one or two consecutive weeks as specified by the employee.
- It must be taken within 56 days of the birth or expected date of birth if the child is born early.
- The rate of SPP is £139.58 per week or 90% of average pay, if lower.
- Employees with weekly earnings under £112 do not qualify for SSP.
- Employers can claim back the SPP by making deductions from their NIC payments.
- Fathers, partners and parents also have the right to unpaid time off to attend up to two ante-natal appointments.
5 Adoption pay
5.1 Adoption leave and statutory adoption pay (SAP) is available to employees who adopt, or one member of a couple where the couple adopt jointly.
- SAP is paid at £139.58 a week or 90% of average pay if lower for up to 39 weeks.
- Adopters with average weekly earnings below £112 do not qualify for SAP.
- Employers can recover the SAP paid by offsetting the amount against NICs.
- Any additional adoption leave - including time off to attend ante-natal appointments - is unpaid.
- A right to paternity leave and pay for the other member of the couple, or an adopter’s spouse or partner, is also available.
6 6 Shared parental leave and pay
6.1 Eligible employees can take Shared Parental Leave (SPL) and Shared Parental Pay (ShPP) if they, or their partner, ends their maternity or adoption leave or pay early and returns to work.
6.2 Employees are entitled to take up to three seperate blocks of leave.
- You can agree to split leave into shorter blocks providing they are at least a week long.
- You cannot refuse to allow an employee to take a block of leave if they qualify and have provided the correct notice.
- Employees can take leave at the same time as their partner or seperately.
- The mother or adopter can change their mind if they haven’t already returned to work or the planned start date hasn’t passed.
- Employees can work up to 20 days during SPL without it effecting their entitlement to SPL and ShPP (see 2.5).
7 Statutory sick pay
7.1 Statutory sick pay (SSP) is paid up to a maximum of 28 weeks, to any worker who is unable to work because of sickness.
- SSP (see 7.2), is paid to qualifying workers at a flat rate of £88.45 a week.
- There is no qualifying length of service or minimum number of hours a week.
- Workers may be entitled to SSP from their first day of employment.
7.2 To be entitled to SSP a worker must:
- Be sick for at least four or more days in a row (including weekends and bank holidays).
- Have earnings over £112 per week.
7.3 Workers become entitled to SSP from the fourth ‘qualifying day’ of sickness.
A qualifying day is any day the worker would normally work.
- In practice, this rule means there are usually three clear days before SSP is payable in any ‘period of incapacity for work’ (PIW).
- If the worker is sick on a weekend day or a Bank Holiday - or any other non-working day - this counts towards the four-day PIW, but is not a ‘qualifying day’.
- Employers must issue form SSP1 by the end of the 23rd week to let the worker know when SSP will be ending.
7.4 You can ask for evidence that a worker is unfit for work. This will usually be a note from their doctor.
- For the first seven days of sickness, a worker must fill in a self-certificate or form SC2 which can be obtained from a GP or www.gov.uk.
- Employees in England and Wales who have been off work for four weeks or more can be referred to the ‘Fit for Work’ scheme. It offers free, occupational-health advice to help them return to work.
7.5 If a worker is sick with a pregnancy related illness in the four weeks before her baby is due, SSP will stop and SMP or MA will start automatically.
- If she is entitled to SMP or MA, she cannot receive SSP for 26 weeks starting with the day of entitlement to those payments.
- If she is not entitled to SMP or MA, she cannot receive SSP for 18 weeks starting with the Sunday of the week her baby is born, or the Sunday of the week she is sick from work for a pregnancy related illness.
7.6 You can withhold SSP if the worker:
- Has recently drawn a state benefit.
- Is held in custody.
7.7 Employers must keep full records of SSP.
- Records must be kept for three years.
- Failure to do so can lead to a £1,000 fine.
8 Getting help
New legislation and the effects of case law means information quickly goes out of date.
8.1 Up-to-date information is available from Acas on 0300 123 1100.
8.2 For advice on the NMW and NLW, call the Pay and Work Rights Helpline on 0800 917 2368.
8.3 For information on statutory pay, NICs and PAYE, contact the HMRC employers’ helpline on 0300 200 3200.
8.4 For interactive tools and guidance on employment rights, visit www.gov.uk/browse/employing-people.