20 FAQs people ask about the minimum wage
- How much is the minimum wage?
- Who is entitled to the minimum wage?
- How much do I have to pay a 16 year old?
- Do I have to pay an adult with no work experience the adult rate?
- Can I pay an employee less than the minimum wage, if they are willing to accept it?
- Do we have to pay an employee with a learning disability who is less efficient than our other staff them the minimum wage?
- Do I have to pay my spouse and children the minimum wage if they work for me?
- Is it ok to pay a mixture of flat rate and bonuses if it means employees might not get paid the minimum wage some weeks?
- Can we include overtime payments in calculating whether we are paying the minimum wage?
- Are freelance workers covered by minimum work legislation?
- Is a 'self-employed delivery driver' entitled to the minimum wage?
- How much can we include for accommodation when calculating whether we are paying the minimum wage?
- Can we include an employee's tips when working out if we are paying the minimim wage?
- Can we attribute a value to workplace 'perks', in calculating whether we pay the minimum wage?
- Do we have to include travelling time in calculating the hours over which we have to pay the minimum wage?
- Do we have to pay the minimum wage for the hours when people are 'sleeping over'?
- What records do we need to keep for minimum wage purposes?
- Can an employee ask to look at their records to check whether they have been paid the minimum wage?
- What are the penalties if we failed to pay the minimum wage?
- Can ex-employees who earned less than the minimum wage come back now and demand that we pay the extra?
1. How much is the minimum wage?
The National Living Wage (NLW) applies those aged 23 and over and is £9.50 an hour.
The main rate applies to those aged 21 to 22 inclusive and is £9.18 an hour.
The development rate which applies to workers aged 18 to 20 inclusive (sometimes called the youth rate) is £6.83 an hour.
The rate for those aged 16 and 17 (except apprentices) is £4.81 an hour.
Apprentices under the age of 19, or older than this but in the first year of the apprenticeship period, are entitled to a minimum of £4.81 an hour. Thereafter, apprentices aged must be paid the rate applicable to their age.
2. Who is entitled to the minimum wage?
Almost all workers in the UK are entitled to receive the minimum wage. Those who must be paid the minimum wage include full and part-time employees, homeworkers, piece workers, agency workers, migrant workers and casual workers. Workers do not require a contract in order to be eligible for the minimum wage.
Some workers are not entitled to the minimum wage. These include:
- the genuinely self-employed
- school-age workers
- students on a work placement of less than one year which forms part of UK higher or further education courses
- students taking part in the Leonardo da Vinci or Youth in Action programmes
- voluntary workers
- residential members of charitable communities practising or promoting religious or other beliefs
- those employed in a Jobcentre Plus work trial - but only for the first six weeks of such a trial
- workers participating in the European Community Erasmus and Comenius programmes
- family members working for a family business who live in the family home and non-family members (such as au pairs) sharing the household's work and living in a family home
- company directors
The average pay for each hour of work completed by eligible workers during any pay period must not fall below the minimum wage.
3. How much do I have pay a 16 year old?
You should pay all 16 and 17 year-olds (other than apprentices) at least £4.81 an hour.
The development rate only applies to:
- those aged 18 to 20, who are not undertaking an apprenticeship
- apprentices aged 19 to 20 (inclusive), unless they are in the first year of their apprenticeship
The development rate is £6.83.
Apprentices under the age of 19, or older than this but in the first year of the apprenticeship period, are entitled to a minimum of £4.81 an hour.
4. Do I have to pay an adult with no work experience the adult rate?
Yes - unless they are undertaking accredited training under a written agreement, in which case you can pay the training rate (which is the same as the development rate - see 1). The definition of accredited training varies according to where you are based (England, Scotland or Wales), but they must train on at least 26 days during the first six months, although the training does not have to take all day. You may only pay them the training rate for six months.
5. Can I pay an employee less than the minimum wage, if they are willing to accept it?
No. Workers cannot sign away their rights. If a worker is 16 or over and is not a family member living in the family home and working within the family business, you cannot pay them less than the national minimum wage applicable to their age - unless they are working for therapeutic reasons only, with no contractual obligation to work at all, and no right to any payment or benefit (ie they are a voluntary worker).
6. Do we have to pay an employee with a learning disability who is less efficient than our other staff the minimum wage?
Almost certainly yes. If they are operating under some form of contract, express or implied, oral or in writing, to provide you with work or services, and you reward this with some sort of 'consideration' (usually money), then unless you can prove otherwise they will be a 'worker', and all workers are entitled to at least the minimum wage.
Your best chance of proving otherwise lies in abandoning any mutuality of obligation - that is, make sure it is clear that you are not obliged to provide them with work and they are not obliged to do it if you do. But even if both of you could live with this, you could have a hard time from HM Revenue and Customs (the policing body), not to mention the Employment Tribunal or County Court and the various disability organisations, if it gets investigated. You can pay them for their expenses only, without creating a worker's contract, and you might be able to pay them a daily allowance for coming in, providing you don't oblige them to work when they come in, or penalise them for failing to do so.
Be aware that if you take someone on and then dismiss them because you find you have to pay them the minimum wage, you subject them to an illegal 'detriment', and they may be able to sue you for unfair dismissal. Take professional advice if you find yourself in this position.
7. Do I have to pay my spouse and children the minimum wage if they work for me?
No. If you are the employer, they are members of your family, and they share your family home, you are not obliged to pay them the minimum wage. With children who have moved away from home, however - or a wife or husband who has moved out - you would be obliged to pay it, as they are no longer living within the family.
8. Is it ok to pay a mixture of flat rate and bonuses if it means employees might not get paid the minimum wage some weeks?
You must ensure that you are paying the minimum wage during each 'pay reference period'. This is normally the period over which you pay people - for example, weekly or monthly. It cannot be longer than a calendar month. However, you can base your calculation not only on the amount paid for that period, but also on the amount earned during it - for example, by way of bonus or commission - provided that the extra earned is paid in the next pay reference period. Obviously you cannot then count that extra towards the minimum wage in the second pay reference period - that would be double counting.
9. Can we include overtime payments in calculating whether we are paying the minimum wage?
You have to strip out any overtime premium from the sum that you include in your calculations. To find the premium, you take the lowest rate that you pay each employee for the same work during normal hours, and deduct that from the amount that you pay in overtime. So for the purposes of calculating the minimum wage, you are effectively paying people for overtime at the lowest rate that you would pay for normal working.
10. Are freelance workers covered by minimum wage legislation?
If they are genuinely self-employed - that is, they have freedom to work for others, can refuse work, set their own hours, incur their own expenses, deal with their own losses and so on - they are not covered by the legislation. Otherwise they are.
If they are covered, and you require them to work during given hours, you have to pay at least the minimum wage for each hour worked. If they are literally paid by the piece, you must either pay them the minimum wage for the period actually worked, or introduce a system known as 'rated output work'.
To apply the rated output system, you must have conducted a test to determine the average speed at which the job can be completed. (In some circumstances you can adapt a previous test to make an estimate.) This test has to be undertaken using all workers, or a representative sample of workers, and in similar conditions to those of the piece rate workers - for example, it is not acceptable to base the test on the use of much better machinery than they will have. You must then issue the piece rate worker, in advance, with a notice which:
- says that such a test has been conducted (or that the speed has been estimated)
- says what average hourly output is
- says that the worker will be treated as having worked for the time that it would have taken him or her to complete the job at the average speed
- gives the rate to be paid for the work in question
- gives one of the National Minimum Wage helpline numbers
Read more about how to work out wages using the rated output system on the GOV.UK website.
You are required to pay 120% of the minimum wage for the time established by the testing procedure. Since the onus is always on you to be able to prove that you complied with the National Minimum Wage legislation, be sure to keep adequate records if you use the rated output system.
11. Is a 'self-employed delivery driver' entitled to the minimum wage?
The Employment Appeals Tribunal has recently made a judgment in a case involving a supposed self-employed driver, establishing that the important points are:
- whether there is a contract to perform work or services
- whether there is an obligation on the person undertaking the work to do it personally
- whether the provision of work or services is made in the course of running a profession or business, and the other party is a customer
In particular the Employment Appeals Tribunal said that tribunals:
- must look carefully at any requirement for the individual undertaking the work to do it personally
- must evaluate the 'mutuality of obligation' - ie the company's duty to provide work, and the individual's obligation to do it
If you employ the delivery driver on an occasional basis, as and when your deliveries are required, and not always then; and if they have no compunction about turning you down or sub-contracting the work if they are busy, they are obviously much less likely to be considered one of your 'workers' - and therefore entitled to the minimum wage - than if they make regular deliveries for you every Friday, and keep their Fridays free so they can do them personally.
In a case in 2008 involving a contractor providing services, the AA was found to be an employer and the contractor an employee by the High Court, on grounds that included the facts their work:
- could not be substituted for another's
- was controlled, appraised and assessed by AA managers, just like that of AA employees
The contractor therefore fell 'on the employment side' of the line between employee and contractor.
If you suspect you may have acquired a worker without intending to, take professional advice.
12. How much can we include for accommodation when calculating whether we are paying the minimum wage?
You can attribute a value to accommodation, when calculating whether your employees receive the minimum wage, but the value has to be calculated by a formula: £8.70 per day or £60.90 per week for each week that the accommodation is provided.
If the accommodation you are providing is worth more than that, you will either have to take the loss or ask the employees to make a contribution - either way, the excess cannot be counted towards the minimum wage.
13. Can we include an employee's tips when working out if we are paying the minimum wage?
No - a case in the Court of Appeal has confirmed that employers must pay their employees at least the minimum wage regardless of any additional tips, gratuities or service charges they may obtain as part of their job. Even if all the tips are collected, pooled and divided equally, but by an employee designated as the 'tronc holder' - so that you know how much employees are making from them - you cannot include this figure when calculating whether your employees are receiving the minimum wage.
14. Can we attribute a value to workplace 'perks', in calculating whether we pay the minimum wage?
No. The only benefit-in-kind to which any value can be attributed is accommodation (see 12).
15. Do we have to include travelling time in calculating the hours over which we have to pay the minimum wage?
Yes, if the travelling is done on your business. However, you can exclude travelling between home and work - and that applies even if work is being done well away from your normal work site. You can also exclude rest breaks while travelling, although only if the employee has some choice over how those rest breaks are taken.
However, the European Court of Justice judged that time spent by mobile workers - those with no 'fixed place of work' - travelling to their first job of the day and home after their last job of the day should be counted as working time. The impact of this decision is currently being assessed, particularly as to any effects on NMW.
16. Do we have to pay the minimum wage for the hours when people are 'sleeping over'?
There has been some to-ing and fro-ing over this. Current official guidance says that, if you specify hours when people may sleep in their employment contract, and you provide them with suitable sleeping facilities, then you do not have to pay them for those hours, except insofar as any work is done in them. If you do not specify any sleeping time, however, an Employment Tribunal might require you to pay for the whole of the time that the worker is at work.
The European Commission has obtained agreement that on-call time will be defined much more precisely, to differentiate it from working time and rest time. The proposal is to define 'active' on-call time, which will count as working time, as time which workers are required to spend at your premises, but during which they are not required to perform any duties. However, this change is yet to be implemented through legislation in the UK.
17. What records do we need to keep for minimum wage purposes?
There are no strict requirements set out, but all employers must hold sufficient records to establish that they are paying workers at least the national minimum wage. You need to keep records because the onus of proving that you have paid the minimum wage is on you. If one of your workers (or ex-workers) claims that they have not been paid enough, it is not up to them to establish that they are telling the truth; it is up to you to prove that they are not. So keep sufficient records of hours worked and wages paid, together with ancillary evidence such as training agreements (see 3), details of rated output work (see 9), or 'daily average' of hours worked agreements. You need to keep your records for at least three years.
18. Can an employee ask to look at their records to check they have been paid the minimum wage?
Yes. You must provide the information within 14 days of receiving a written request. Otherwise the employee can go to an Employment Tribunal, which may impose penalties on you.
19. What are the penalties for failing to pay the minimum wage?
If you failed to comply with an enforcement notice, you would be served with a notice of underpayment, requiring you to pay the arrears to each named employee and a financial penalty. The penalty is 200% of the unpaid wages owed to workers with a maximum penalty of £20,000 per worker that has not been paid the NMW unless the arrears are paid within 14 days.
You will be required to pay the current rate of minimum wage for the whole period of underpayment, even if lower rates of minimum wage were in force for some of that period. Employers who fail to pay the national minimum wage will be banned from being a director for 15 years.
You could also be prosecuted in the criminal courts for a range of offences associated with the minimum wage, including a deliberate refusal to pay it, falsifying the records, or attempting to mislead HM Revenue and Customs (which is the investigating authority). If convicted of any of these offences you could be subject to an unlimited fine.
20. Can an ex-employee who earned less than the minimum wage come back now and demand that we pay the extra?
Yes. The minimum wage was introduced in April 1999. Subject to the exceptions for family or voluntary workers (see 4 and 5), anyone who has worked for you since then at less than the minimum wage can require you to pay the difference. There is an overall limit of six years on the amount of arrears that can be claimed. However, you can't make a claim more than six years after the arrears were due.
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