Do I have to pay Minimum Wage for commission-only staff?
Up until April 5, I had 12 members of staff who worked on a commissiononly basis. This arrangement suited all of us but I have recently been told I have to put them on minimum wage, which has upset a lot of my staff. Was the previous arrangement legal?
A. Derek Kemp of Liquid HR writes:
The law makes clear that wages comprise any sums payable to a worker in connection with his/her employment, and so obviously commission payments are included. The purpose of the national minimum wage is to set the baseline and not, as seems to be suggested in the question, to prescribe the rate that must be paid. Therefore, to pay earnings determined by commission only is not illegal unless the rate paid works out to below the current national minimum wage. Whether or not an employer is in breach of the obligation to pay at least the national minimum wage will depend upon calculation of the average hourly rate that is actually being paid. This will involve determining two figures: total pay in the relevant period, and the total number of hours worked during that period.
The relevant considerations when making the two calculations are complex, but as a general guide, ‘relevant period' refers to a month for monthly paid staff and a week for weekly paid staff. ‘Total pay' means payments earned during a period are Growing 28 Business June 2004 allocated to the period in which they are earned, and not necessarily to the period in which they are paid. Regarding ‘hours worked', commission-only sales is a good example of what is called ‘output work' (that is, the work is paid for only according to the number or value of items sold). Under the regulations, the number of hours worked during the relevant period can be the subject of a ‘fair estimate' agreement between the employer and the worker, or alternatively the actual hours worked can be calculated (note that this is due to change with the introduction of amended regulations, effective October 1, 2004).
Once the pay received by a worker and the number of hours worked are known, it is then straightforward to calculate a worker's average hourly rate of pay.