Even though the national minimum wage has been with us for over 18 years, and there has been a government naming and shaming scheme for employers that flout the law for over six years, some employers – including household names – still manage to break the rules and receive some quite embarrassing publicity as a result.
We explain the basics around the national minimum wage, to help you comply.
National minimum wage: podcast
XpertHR explains the rules around the national minimum wage and highlight some of the pitfalls for employers.
Nearly everyone qualifies for the national minimum wage
As we reported at the beginning of 2017, the Government published some of the excuses offered by employers for failing to pay the national minimum wage. Many of the excuses focused around a purported lack of entitlement.
However, employers should be aware that the national minimum wage applies to just about all workers, that is, anyone who is not genuinely self-employed, with some very limited exceptions.
Agency workers, apprentices, casual and zero hours workers, and homeworkers all qualify. Further, workers qualify as soon as they start work.
- Employment law manual: Eligibility for the national minimum wage
- Who is eligible for the national minimum wage?
- Are employers required to pay apprentices the national minimum wage?
- Are employers required to pay school children on work experience the national minimum wage?
The national minimum wage increases annually
Different rates of the national minimum wage apply to different age groups and the rates increase annually in April.
They used to increase every October but this changed from April 2017 so that the date of the annual increase in the national living wage and the other rates of the national minimum wage aligned.
- Quick reference: National minimum wage
- Letter advising a worker of a pay increase because of a rise in the rate of the national minimum wage
National living wage
The national living wage, which was introduced in April 2016, is the rate of the national minimum wage for workers aged 25 or over and is a higher rate than those for younger workers. It should not to be confused with the Living Wage Foundation’s living wage based on the cost of living, which is a voluntary rate.
- What is the national living wage?
- When a worker turns age 25, is he or she entitled to be paid the national living wage rate from the date of his or her birthday?
- What is the living wage used by the Living Wage Foundation and how is it calculated?
Paying the national minimum wage
The rules for determining if a worker has been paid the national minimum wage are complex but, put very simplistically, employers need to:
- work out how much gross pay they are paying someone in a pay reference period (which is the period between pay dates and will usually be weekly or monthly);
- work out how many hours of work were undertaken in the pay reference period; and
- divide the gross pay by the number of hours worked.
The calculation depends on the type of contract the worker has, for example if it is based on time work, salaried work, output work or unmeasured work.
- How to review your organisation’s pay rates against the national minimum wage
- Employment law manual: Hours worked during the pay reference period
- National minimum wage worked examples
Pay that can and cannot be used to offset national minimum wage obligations
Employers can use gross money payments only, to determine if minimum wage obligations are being met.
Benefits-in-kind cannot be used, even where they form part of a salary-sacrifice arrangement (although there are special arrangements around accommodation).
Employers cannot take into account loans or advances or expenses payments, and overtime and shift premia also have to be stripped out.
Employers also cannot use tips or service charges to make up the national minimum wage.
- Can accommodation provided to employees be taken into account when calculating payment of the national minimum wage?
- Which elements of pay count for the purposes of calculating whether or not the national minimum wage has been paid?
Some employers may believe that travel-for-work time does not qualify for the national minimum wage. This is wrong. The rules provide that time spent travelling for the purpose of working (so, for example, between different assignments), qualifies for the national minimum wage.
However, travelling time between home and work does not qualify.
- Do mobile workers have to be paid for travel between home and their first and last appointments of the day?
HM Revenue and Customs’ enforcement budget was substantially increased in 2016, so more national minimum wage complaints can be investigated. Penalties have also increased over the last couple of years at 200% of the underpayment and maximum payments of up to £20,000 for each underpaid worker.
There are also potentially unlimited fines for criminal offences around the national minimum wage and imprisonment if labour market enforcement orders are breached.
And the Government’s naming and shaming scheme, which publishes details of employers that have underpaid their workers, has already caused some employers embarrassment and negative press.