You have to pay at least the national minimum wage to most of your workers, including temporary, part-time, casual and homeworkers, as well as those working for you via an agency and those working on a commission basis
National minimum wage rates
There are now five rates:
- the National Living Wage applies to all employees aged 25 and over for pay periods starting on or after 1 April 2017
- the main rate (also called the standard or adult rate) applies to all employees aged over 21 but under 25 unless they fall within one of the exceptions, or another rate applies
- the development rate applies to all workers aged 18 to 20 inclusive
- the third rate applies to workers who are 16 and 17 years old (but not apprentices)
- the apprentice rate
In England & Wales, a person is above the compulsory school leaving age (and therefore becomes entitled to the minimum wage for 16 and 17 year-olds) after the last Friday in June of the school year in which their 16th birthday occurs.
An employee cannot sign away their rights to the minimum wage.
The National Living Wage is £7.50 an hour, the main rate is £7.05, the development rate is £5.60 an hour and the rate for 16 and 17 year olds is £4.05 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 £3.50 an hour. Thereafter, apprentices aged 19 to 20 must be paid at least the development rate, and older apprentices must be paid the adult rate or more.
Exceptions to National Minimum Wage
You do not have to pay the minimum wage to:
- Individuals who live in the family home of the employer and are treated as family members, so there is no deduction from wages for food or accommodation. This is intended to cover au pairs, nannies and companions.
- Actual members of your family, in respect of domestic duties, or the running of the family business where the worker lives at home.
- Workers participating in the European Community Erasmus and Comenius Programmes.
If workers 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 - you do not have to pay them the minimum wage.
The Employment Appeals Tribunal has said that the important points to take into account when judging whether someone is self-employed or not 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
So if you employ, eg a ‘man with a van’:
- on an occasional basis, as and when your deliveries are required, and not always then
- he has no compunction about turning you down or sub-contracting the work if he is busy
he is obviously much less likely to be considered one of your ‘workers’ than if he makes regular deliveries for you every Friday, and keeps his Fridays free so he can do them personally.
If you suspect you may have acquired a worker without intending to, take professional advice.
Voluntary workers - those working for therapeutic reasons only, with no contractual obligation to work at all, and no right to any payment or benefit - are not entitled to the national minimum wage.
Working out whether you are paying the minimum wage
You must pay the minimum wage over each ‘pay reference period’. This is normally the period for which you pay people - for example, weekly or monthly. It cannot be longer than a calendar month.
You can take into account wages earned, but not paid, during that period - for example, by way of bonus or commission - provided that the extra earned is paid in the next pay reference period. You cannot then count that extra towards the minimum wage in the next pay reference period, as that would be double counting.
Strip out overtime premium from the sum that you include in your calculations. To work out the overtime premium:
- take the lowest rate that you pay each employee for the same work during normal hours
- deduct that from the amount that you pay in overtime
The result is the overtime premium. Then deduct that from your calculation of the wage payable. The result should equal or exceed the national minimum wage.
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.
Paying NMW to piece workers
If workers are paid by the piece, you must either pay them the minimum wage for the period actually worked, or operate a system known as ‘rated output work’.
To apply the rated output system, you must conduct 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
You must pay 120% of the relevant minimum wage rate 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.
Taking accommodation into account
You can take the value of accommodation provided to an employee into account, but only up to a maximum of £6.40 per day or £44.80 per week for each day that the accommodation is provided from 1 April 2017.
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.
Other benefits in kind
Benefits-in-kind other than accommodation (eg the right to buy company products at a discount) can’t be taken into account when calculating the national minimum wage.
Tips cannot be included in calculating whether staff earn the national minimum wage. Employers must pay staff at least the national minimum wage regardless of any additional money they receive in the form of tips or gratuities. Even if all the tips are collected, pooled and divided equally, so that you know how much employees are making from them you cannot count this towards the national minimum wage.
Travelling time and breaks
Time spent travelling on business must be included in your calculation of hours worked. However, time travelling between home and work is not usually classed as working time, even if work is being done well away from your normal work site. However, in a recent case the European Court of Justice gave judgement that time spent travelling from home to the first job of the day and back again after the last job of the day should count as working time where the employee is a mobile worker with no fixed place of work. The impact of this on NMW rules is still being assessed so you should review whether this ruling affects any of your workers.
You can also exclude rest breaks while travelling, although only if the employee has some choice over how those rest breaks are taken.
There has been some to-ing and fro-ing over this. Current official guidance says that, if you specify in their employment contract hours when people may sleep, 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 actually 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 recently obtained agreement that on-call time will be defined much more precisely, to differentiate it from working time and rest time. However, this change will have to be implemented through legislation in the UK, and there is as yet no indication of when such legislation will come into force, or how it will apply.
Access to NMW records
You must provide information showing an employee’s right to the minimum wage within 14 days of receiving a written request. Otherwise the employee can go to an Employment Tribunal, which may impose penalties on you.
You must hold sufficient records to establish that you are paying workers at least the national minimum wage - the onus of proving that you have paid the minimum wage is on you.
Keep records of hours worked and wages paid, together with ancillary evidence such as training agreements, details of rated output work, or ‘daily average’ of hours worked agreements, for at least three years.
Failing to pay NMW
If you fail to pay the national minimum wage, a notice of underpayment can be served requiring you to pay the arrears to each named employee as well as a financial penalty. The penalty is 200% of the amount owing in arrears (subject to a maximum of £20,000 per worker that has been underpaid) unless the arrears are paid within 14 days. Employers who fail to pay the national mimimum wage will be banned from being a company 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.
The minimum wage was originally introduced (at £3.60 an hour for adults, and £3.00 an hour for 18-21 year olds) in April 1999. Subject to the exceptions outlined above for family or voluntary workers, anyone who has worked for you since those dates at less than the minimum wage can require you to pay them the difference, even after they have left. 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. Employers are 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.
If in doubt, take legal advice.
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