National Minimum Wage
How much do you need to pay your workers? What are the current rates? And what happens if you fail to pay the Minimum Wage? Our guide explains it all
Most adult workers in the UK must be paid at least the National Minimum Wage which, as of October 1, 2015, rose 20 pence to £6.70 – the biggest real term rise in seven years.
The measure was first introduced on 1 April 1999 by the National Minimum Wage Act 1998 and the National Minimum Wage Regulations 1999.
Set by the government the headline figure is based on guidance provided by independent body the Low Pay Commission.
All employers must pay the Minimum Wage – there is no exemption for small employers or discounts for geographical areas. If you falsify your records, fail to keep adequate records, or obstruct an enforcement officer you will be committing a criminal offence and could be fined up to £5,000.
The maximum penalty for not paying the Minimum Wage is £20,000, which would equate to 100% of unpaid wages. As an employer you would also need to pay arrears within 14 days. Failure to comply could result in prosecution and an additional fine.
What are the current National Minimum Wage rates?
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 £6.70 an hour.
- Bosses will are also required to pay £5.30 an hour to 18-20 year-olds.
- Employers will also be required to pay at least £3.87 per hour to young workers aged between 16-17.
- The apprentice rate companies must pay now stands at £3.30.
What other key features do employers need to know about the Minimum Wage?
- Accommodation provided by an employer can be factored into an employee’s wage. The accommodation offset is £5.08 a day or £35.56 a week
- 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
- An employer that has failed to pay the minimum will be required to pay arrears.
Who has to be paid the Minimum Wage?
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, your business also has to pay the minimum standard to:
- Part-time workers
- Homeworkers paid on output
- Casual Labourers
- Agricultural workers
- Disabled workers
- Commission workers
- Trainees and those on probation with your business
- Workers from outside the UK
- and British offshore workers working temporally outside the UK are included.
Who does not have to be paid the Minimum Wage?
The main classes of workers who are not entitled to the Minimum Wage are:
- The genuinely self-employed
- Company directors
- Volunteers or voluntary workers
- Workers on government employment programme the Work Programme
- People on a Jobcentre Plus Work trial for six weeks
- People on a European Union programme, such as Erasmus, Youth in Action, Comenius, and Leonardo da Vinci
- Family and non-family members living with you, such as au pairs and nannies, who are not charged for food or accommodation
- Workers younger than the school leaving age (those under 16)
- Work placement students who work with you for up to a year as part of their course (although post-graduate students, and students taking holiday and “gap” year jobs, must be paid the minimum)
- Some apprentices, such as those on government pre-apprenticeship schemes
- 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)
- Friends and neighbours working on an informal basis
- Share fishermen
How do you calculate hourly rates to pay the Minimum Wage?
The formulae employers need to use to calculate hourly rates of pay of worker for the national minimum wage can be extremely complicated and you may need to consult the detailed government guidance. This guidance covers, among other things:
- The “reference” period for averaging pay
- What payments are included
- What payments are excluded
- The treatment of benefits in kind and accommodation
- 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
- 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
- Advances of wages
- Pension payments and retirement lump sums
- Redundancy payments
- 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
- Refunds for money spent on materials, tools etc.
Deductions from wages which do 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.
How is the National Minimum Wage enforced?
HM Revenue & Customs (HMRC) 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.
The government’s site has further guidance.
What are the penalties for not paying the National Minimum Wage?
If you don’t pay your employees the National Minimum Wage or falsify 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:
- Fail to keep proper records
- Keep false records
- Obstruct an enforcement officer or refuse to answer questions or provide information
If it’s found that your business has wilfully neglected to pay the National Minimum Wage you could face a fine of up to £20,000 per employee. In such a case, payment in arrears would be due in 14 days and the maximum figure would be based on 100% of the unpaid wages.
How much did the National Minimum Wage used to be?
If you’re interested in knowing how the Minimum Wage has changed in the past decade, here’s an at-a-glance breakdown.
|Year||21 and over||18 to 20||Under 18||Apprentice|
* The apprentice figure applies to apprentices aged under 19 or in the first year of a level 2 or 3 apprenticeship.
Before 2010 there was no Minimum Wage rate for apprentices.
|Year||22 and over||18 to 21||Under 18|