National minimum wage
Most adult workers in the UK must be paid at least the national minimum wage, which as of October 1, 2013, rose 12 pence to £6.31. The measure was first introduced on 1 April 1999 by the National Minimum Wage Act 1998 and the National Minimum Wage Regulations 1999.
All employers must pay the minimum wage – there is no exemption for small employers or discounts for geographical areas. The latest increase means employers must now pay their staff at least £6.31 per hour.
The main rules of the minimum wage scheme are that:
- Adult workers aged 22 and over, except “accredited” trainees and some excluded groups, must be paid at least £6.31 an hour;
- Bosses will also be required to pay £5.03 an hour to 18-20 year olds.
- Employers will also be required to pay at least £3.72 per hour to young workers aged between 16-17.
- The apprentice rate companies must pay stands at £2.68
- Accommodation provided by an employer can be factored into an employee’s wage. The accommodation offset is £4.91 a day
- Employers must keep records to prove they are paying at least the minimum;
- In a dispute at a tribunal or civil court, the burden is on the employer to prove that the minimum has been paid; and
- An employer that has failed to pay the minimum will be required to pay arrears.
Coverage and exceptions
Employees with a contract of employment are covered by the minimum wage legislation, as are freelance workers who are not genuinely self employed. In particular, homeworkers, pieceworkers, commission workers, workers from outside the UK, and British workers working temporally outside the UK are included.
The main classes of workers who need not get the minimum are:
- The genuinely self-employed;
- 16 and 17 year olds;
- Some apprentices;
- Trainees on government-funded schemes who do not receive wages from the employer;
- Students doing work experience as part of a higher education course (although post-graduate students, and students taking holiday and “gap” year jobs, must be paid the minimum);
- Members of the armed forces (although civilian MoD workers are covered);
- Genuine voluntary workers;
- People living and working within the family (although many au pairs, nannies and “companions” may be covered); and
- Friends and neighbours working on an informal basis.
Calculating hourly rates
The formulae employers need to use to calculate hourly rates of pay of worker for the national minimum wage can be extremely complicated and employers may need to consult the detailed guidance published by the DTI. This guidance covers, amongst other things:
- The “reference” period for averaging pay;
- What payments are included;
- What payments are excluded;
- The treatment of benefits in kind and accommodation; and
- Hours for which the minimum wage must be paid.
Workers need not be paid the minimum wage for each hour worked but must be paid the minimum on average for the time worked in the pay reference period. Generally, this reference period is the worker’s actual pay period – eg a day, a week, a month. Importantly, remuneration earned in the period but paid later (perhaps as a bonus or commission) is included.
The minimum wage is based on gross pay, so most elements of pay are taken into account. Specifically included are:
- Incentive pay;
- Tips paid through the payroll;
- Deductions of a proper penalty (eg for misconduct);
- Deductions for an advance of wages;
- Deductions to pay for shares;
- Sums recovered for accidental overpayments;
- Union subscriptions;
- Workers’ pension contributions;
- Unforced payments by the worker for employer’s goods and services; and
- Accommodation provided up to a specified limit.
Some very significant payments are not taken into account. These include payments which do not form part of gross pay, such as loans; advances of wages; pension payments and retirement lump sums; redundancy payments; and rewards under a staff suggestion scheme.
Certain elements of gross pay are also excluded, in particular: overtime and shift premia payments; special allowances (such as unsocial hours payments, dangerous conditions payments, and location allowances).
Expenses or allowances for travel, clothing etc, are naturally excluded, as are refunds for money spent on materials, tools etc.
Deductions from wages which no not count include: those for expenditure connected with the job (eg for the provision of safety clothing and uniforms); and deductions for the employer’s benefits (eg for meals provided). Similarly, if deductions are not made but the employee reimburses the cost of such provisions, these payments do not count.
Benefits in kind and accommodation
No benefits in kind (such as meals, luncheon vouchers, cars, and employers’ pension contributions) count towards the minimum wage, except accommodation within specified limits.
For time workers and salaried staff, the hours for which the minimum wage is payable are normally: time spent at or near the workplace, travelling time on business and training time. Hours which do not count include travelling between home and work, rest breaks, holidays, sick leave and maternity leave, and industrial action.
In the case of workers paid by output, either the minimum wage must be paid for each hour worked, or an agreement made with the employer on a “fair estimate” of the hours likely to be spent. Similarly, for workers where hours are not specified – ”unmeasured work” – either the minimum must be paid for each hour worked, or an agreement reached on the “daily average” of hours to be worked.
The Inland Revenue has been appointed as the main enforcement agency with wide powers of investigation, inspection, and enforcement. Workers have the right to inspect employers’ records and can complain to an employment tribunal or court if they believe they are not being paid the minimum.
Further government guidance can be found at: https://www.gov.uk/browse/working/tax-minimum-wage
If an employer does not pay the national minimum wage or falsifies records, this is a criminal offence. Penalties can be calculated online using the government’s calculator to work out their arrears.
The penalty is calculated as 50% of the total underpayment for all workers not paid the required amount during the reference period.
It is a criminal offence, with a maximum fine of £5,000, to:
- Refuse, or wilfully neglect, to pay the national minimum wage;
- Fail to keep proper records;
- Keep false records;
- Obstruct an enforcement officer or refuse to answer questions or provide information.