National Minimum Wage
- Employers – NMW
- Calculating Total Remuneration Earned including deductions
- Number of hours worked
- The pay reference period
- Record keeping and Enforcement
Employers – NMW
Employers are required to pay their workers at least the National Minimum Wage or the National Living Wage (referred to collectively as NMW below). Those rates are:
|Year||25 and over||21 to 24||18 to 20||Under 18||Apprentice|
Whilst it may seem a relatively simple task to comply with the applicable rates, the regime is very complex and has caused a number of large companies to unwittingly fall in breach. Companies such as Monsoon Accessorize, Argos, Debenhams, H&M, and Welcome Break are a few of the well-known names that have reportedly been held in breach.
Whether a worker has received the NMW will depend on their average hourly rate. This is calculated on the basis of:
- The total remuneration earned over the relevant pay reference period; and
- Divided by the total number of hours worked over the pay reference period.
Employers must retain relevant records of the hours worked and payments made to their workers.
Failure to pay the NMW may lead to enforcement by HMRC (civil courts/Employment Tribunal), prosecution by the CPS (criminal) and/or enforcement by the worker(s) (civil courts/Employment Tribunal).
Calculating Total Remuneration Earned including deductions
Total remuneration in the relevant pay reference period consists of:
- Gross pay before deductions received during that period
- Gross pay before deductions earned during that period but paid in the next
- Less payments and deductions that do not count towards the NMW
Examples of pay and benefits that count towards the NMW:
- Basic salary (the gross amount)
- Bonus, commission and other incentive payments based on performance (but not any premium paid for overtime or shift work
- Piecework payments
- Accommodation allowance
Examples of pay and benefits that do not count towards the NMW:
- Benefits in kind whether or not they have a monetary value (except accommodation allowance)
- Loans or an advance of wages
- Overtime and shift premia
- Pension payments or lump sums on retirement
- Any premium paid for overtime or shift work
- Any allowances or payments that are not attributable to the employee’s performance, for example London weighting or a specific on-call allowance
- Since 1 October 2009, tips and gratuities paid through payroll
- Some payments in respect of absences
Deductions and payments
Certain sums must be subtracted from the total gross pay, for example:
- those payments to cover the cost of tools or uniforms
- deductions which are for the employer’s “own use and benefit”,
- any payment or deduction in respect of the provision of living accommodation to the extent that it exceeds the accommodation allowance under the regulations.
However, certain sums should not be deducted, such as:
- deductions from pay because of the worker’s conduct
- deductions to cover share purchases
- deductions for the repayment of an advance of wages or an accidental overpayment
So here, the employer will comply with the law provided the worker’s pay before these deductions or payments is at least the NMW.
Number of hours worked
The number of hours the employer must pay the NMW for depends on the work the workers do. The number of hours worked during the reference period is calculated differently depending on the type of work done by the worker. It is far from obvious which category applies and HMRC will often decide on a category that an employer has not anticipated. This can lead to an inadvertent breach.
There are four types of work defined in the NMW Act 1998:
- Salaried hours work
- Output work
- Time work
- Unmeasured work
It is possible that some workers will do more than one type of work during a pay reference period.
The pay reference period
The pay reference period is the period used for calculating hourly pay. It is one month or, if the worker is paid by reference to a period that is shorter than a month, that period. Therefore:
- workers paid daily will have a pay reference period of one day
- workers paid weekly will have a pay reference period of one week
- workers paid monthly will have a pay reference period of one month
The pay reference period cannot exceed a month and therefore employers who pay their workers less frequently than monthly (for example, quarterly) still need to ensure that workers receive the NMW each month.
Record keeping and Enforcement
Employers are legally required to keep certain records in relation to the hours worked by, and the payments made to, workers. This is to demonstrate the NMW has been paid.
Records should be in a single document and include all the information about the pay received by a worker in a particular reference period. The records can be kept on paper or computer. The records should be kept for 3 years under the Regulations but it is good practice to keep them for 6 years.
There is a presumption that the worker has not been paid the NMW unless the employer can prove to the contrary so records are essential. There are also criminal offences associated with failure to maintain records and falsification of records.
Compliance officers can ask to see records and remove them to take copies. There is also an overriding obligation to assist the compliance officers in their investigations.
This publication is intended for general summary guidance. It is not and should not be considered legal advice. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.