Not
only did the National Minimum Wage increase again in October, but its
applications continue to throw up interesting problems for employers. Rachel Mann
reports
In
the past year, the courts have become increasingly willing to apply the
National Minimum Wage (NMW) in some unexpected situations, especially in
relation to employers that require their workforce to be on call or work from
home.
And
in another recent development, the National Minimum Wage Act 1998 (the Act) has
been amended recently to allow awards of minimum wage arrears to be made in
respect of past employees.Â
Who
is entitled to receive the National Minimum Wage?
The
Act provides that all workers are entitled to be paid the NMW provided they
have reached school-leaving age and ordinarily work in the UK. Under the Act, a
worker is defined as someone who either:
–
works under a contract of employment (ie an employee), or
–
works under any other contract where he or she undertakes to perform work or
services personally (for someone other than a client or customer of his
business).
This
definition basically means all workers except the genuinely self-employed. Some charity workers are among the few
exclusions. However, employers should be careful: if volunteers receive
benefits, other than food or accommodation, they will not fall within the
exemption.
Rate
On
1 October the rate went up to £4.50 for workers aged 22 and above and £3.80 for
18-21 year-olds.
How
is the NMW calculated?
The
NMW is expressed as an hourly rate. To calculate whether a worker is being paid
at the NMW or more, you need the:
–
total pay (before taxes) received in the relevant pay period
–
total number of hours worked during the relevant pay period
The
pay period is how often the worker is paid (eg weekly) up to a maximum of a
month.Â
Pay
Pay
includes gross salary, commission and bonus. An interesting recent case in the
European Court of Human Rights (ECHR) was brought by a group of London waiters.
In Nerva v UK, 2002, IRLR 815, the ECHR had to consider whether waiters were
entitled to exclude any tips they received from the calculation of their
minimum wages. They argued that the customers meant the tips to go to them, so
although legal title passed to the employer via the credit card company, the
employer legally held the tips on trust for the waiters. Therefore, they
claimed these tips were already their property and so could not count towards
the employer’s obligation to pay a minimum wage. The ECHR disagreed and
effectively confirmed DTI Guidance that tips paid by cheque and credit card,
and later paid to workers through the payroll, count towards the NMW.
On
the other hand, if tips are given directly to the waiters they are excluded for
NMW calculation purposes.
Hours
worked
The
calculation of the number of hours worked under the Act is a complicated and
contentious issue. The Act divides types of work in to four different
categories: salaried hours work; unmeasured work; time work; and output work.
The
most common form of wage payment, salaried work is basic contractual hours
remunerated by an annual salary paid in installments. It is the distinction
between the second and third categories of work that has caused the most
difficulties.
Unmeasured/time
work
The
courts have recently considered the thorny issue of whether a worker who is
on-call or required to sleep on work premises falls within unmeasured or time
work. If a worker is carrying out ‘unmeasured work’, he/she has to perform
specific tasks but has no set hours during which to do the tasks. Therefore,
the relevant hours will be those actually spent by him/her carrying out his/her
duties.
On
the other hand, if he/she is performing time work, he/she will be paid for a
set number of hours or period of time, therefore the relevant hours will
include time when the worker is available for the purpose of working.
This
can make a considerable amount of difference, for example, the actual hours
performing a job may be seven hours a day, while the requirement to be on site
to assist a patient could be a 24-hour obligation. Recent cases have produced
some seemingly unfair results.
Time
work
–
Nurses who provided an emergency nursing telephone service from their homes
were considered to be entitled to the NMW for the duration of their night
shift, although they were entitled to spend their time as they liked in between
taking calls. In British Nursing Association v Inland Revenue (National Minimum
Wage Compliance Team, 2002, EWCA (Civ 494), the Court of Appeal stressed that
the question of whether a worker was engaged in time work or unmeasured work
needed to be analysed on the individual circumstances of each case. In this
case, the nurses were paid to be available at any time during their shift, and
did the same job as their colleagues who worked day shifts in the office.
Accordingly, although the Act treats workers who are on call differently, the
nurses were not on call during their night shifts, but in fact working
throughout.
–
In line with the previous case, a night watchman was also considered to be
eligible for the NMW for each hour of his 14-hour night shift despite only
actively working, on average, for four hours each night.
In
Scottbridge Construction Limited v Wright, 2003, IRLR 21, the Court of Session
described the main function of the night watchman’s work as being available to
respond immediately when he was needed to protect the security of the company’s
premises. Accordingly, although he was provided with sleeping facilities and
could watch TV or read, he was entitled to payment at the NMW rate for each
hour of his shift as he was required to be available throughout.
Unmeasured
time
–
The case of a live-in carer, Walton v Independent Living Organisation Ltd,
2003, IRLR 469, bucked the trend. Although the carer was required to live in
the home of an epileptic client, spend at least three nights in his house, and
help with specific household duties, the Court of Appeal held that she was only
entitled to the NMW for six hours and 50 minutes each day. The courts in both
of the above cases had found that the workers were engaged in time work.
However,
in this case, the Court of Appeal found the carer was carrying out unmeasured
work. She was paid not merely by reference to length of time she took to do her
duties, but also to other factors such as the difficulty of the work. Therefore, she was not doing time work.
The
issue of on-call hours for NMW purposes overlaps with on-call working time for
the purposes of the Working Time Regulations. For instance, in Landeshauptstadt
Kiel v Jaeger (see p10-11), the European Court of Justice decided that time
spent by a doctor on-call at a clinic was ‘working time’ even though he was
allowed to sleep during those hours.
Output
work
Output
work involves work that is paid for wholly by reference to the number of pieces
made, or the number of sales or transactions completed, by a worker. This
category includes a variety of workers including door-to door commission sales
people and factory piece workers.Â
Recently,
the application of the output work principle to home workers has come under the
spotlight. Homeworkers have traditionally been paid according to a piece or
output rate that may be well below the NMW as their expected rate of production
is often set at unreachable levels.
The
Act provides for employers to reach Fair Estimate Agreements with output
workers. These agreements contain a ‘fair’ estimate of the hours needed to
complete the work to be done and require the employer to pay the NMW for the
hours actually worked up to the limit set in the estimate. The estimate for the
number of hours needed will only be fair if it is at least four-fifths of the
time an average worker would take to do the same amount of work in the same
conditions.
Despite
this provision, fair estimate agreements have been prone to abuse, spurring a
Government initiative to replace fair estimate agreements with a ‘fair piece
rate’ linked to the NMW. Proposals include the abolishment of the four-fifths
rule and its replacement with a requirement on employers to pay their workers
the NMW based on a piece rate set on the rate of work of an average worker.
Instead of concluding agreements with individual workers, employers would be
required to issue notices to prospective employees informing them of the fair piece
rate in place.
The
Government is considering the proposals following a consultation period earlier
this year.
Enforcement
Since
July this year, employers can be required to pay arrears of NMW to
ex-employees. The Government brought in specific legislation to achieve this
result and overturn the 2002 case of Inland Revenue v Bebb Travel plc, 2002,
IRLR 783, which had decided awards could only be made in respect of current
employees. This opens up the possibility
of very expensive claims. The provision is unusual as it is retrospective and
allows claims for up to six years of arrears (although, at present, a claim
could only date back to 1 April 1999 when the Act came into force).
Points
to note
–
NMW rate increased on 1 October to £4.50/£3.80.
–
Employers should ensure they agree with employees the basis for their rate of
pay.
–
Employers that have paid less than NMW in the past may be required to pay
arrears to ex-employees.
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–
The Low Pay Commission is consulting on whether the NMW should be extended to
16- and 17-year-olds, with a report due by February 2004.
Rachel
Mann is a solicitor with Lovells Employment Group
