National minimum wage – don’t be that employer

In 2015, Monsoon Accessorize was named and shamed for underpaying 1,438 workers by more than £100,000
Terry Harris/REX/Shutterstock

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.

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.

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.

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.

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.

Travelling time

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.


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.

No comments yet.

Leave a Reply