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Do I have to pay the National Minimum Wage?

There is always much talk in the press around the ethics of paying low wages to employees. However whilst on the one hand there is a moral debate, there is in the first instance a statutory entitlement. This article sets out what the basics are around the statutory regulations for the National Minimum Wage (NMW).

What is the National Minimum Wage?

The National Minimum Wage is a legal requirement that sets the minimum hourly rate you are required by law to pay your employees. 

Almost all workers are entitled by law to be paid no less than the National Minimum Wage. If you employ staff, you’ll need to pay your workers at least the legal minimum.

How much is the National Minimum Wage?

The minimum wage rate depends on several factors, including the worker’s age. From April 2019 the National Minimum Wage rate per hour is:

  • £8.21  for workers aged 25 and over
  • £7.70  for workers aged 21 to 24
  • £6.15 for workers under 18 to 20
  • £4.35 for workers under 18
  • £3.90 for apprentices aged under 19 and those aged 19 or over who are in their first year.

Who is entitled to the National Minimum Wage?

Most workers are entitled to the minimum wage. This includes part-time staff, casual labourers (eg someone hired for one day), agency workers, homeworkers, workers paid by the number of items they make, apprentices, trainees and workers on probation.

There are no exemptions for small employers.

The table below lists the different types of employee and entitlements.

Employee typeEntitlementReason
School leaverYesWorkers must be of school leaving age (last Friday in June of the school year they turn 16) or over to get the minimum wage. 
ApprenticeYesApprentices are entitled to the apprentice rate if they’re under 19 or if they’re over 19 and in the first year of their apprenticeship. Apprentices over 19 who have completed the first year of their apprenticeship become entitled to the minimim wage rate for their age. 
Self-employed workerNoSelf-employed people running their own business are not entitled to the NMW.
Agency workerYesAgency workers are entitled to the NMW. The agency will be deemed their employer, so if a member of your staff is an agency worker you are not responsible for the setting of their salary. 
Workers on probationYes Workers in their probation period are entitled to the NMW. 
Foreign workersYesForeign workers are entitled to the NMW if they are working in the UK. Failure to pay the NMW would not only be a breach of the NMW legislation but may also warrant a claim under the Equality Act 2010 for discrimination. 
TraineesYesTrainees are entitled to the NMW. 
A worker paid by the number of items they makeYes The NMW needs to be factored into any pay arrangements made. 
Part-time workwesYesPart-time workers are entitled to NMW. Failure to pay the NMW would be a breach of the Part-Time Workers (prevention of less favourable treatment) Regulations 2000. 
VolunteersNoVolunteers are not paid for their time, so the NMW does not apply. Volunteers may be paid expenses for travel, food or any equipment they may need to purchase.
Company directorsNoA company director in the true sense i.e someone who runs a limited company on behalf of shareholders is not entitled to the NMW.
Work placement studentsNoStudents in Higher and Further Education who are on work placements of up to 12 months in total are not entitled to the NMW (although it may not help your reputation to pay them less than the NMW). Students doing work shadowing are also not entitled to the NMW. 
Workers aged 25 and overYesWith effect from April 2016 the government introduced the National Living Wage for workers aged 25 and older. This is higher than the National Minimum Wage. 
Workers on a government employment programme or government pre-apprenticeships schemesNoWorkers on a government employment programme, e.g the Work Programme, are not entitled to the NMW. The same applies to workers on government pre-apprenticeships schemes.
Family members of the employerNo Family members of the employer living in the employer’s home are not entitled to the NWW. 

 

How often does the minimum wage increase?

The national wage increases on a yearly basis.  The table below shows by how much the NMW has increased over the past few years for workers over the age of 21.

YearAmount
2018£7.83
2017£7.50
2016£7.20
2015£6.70
2014£6.50
2013£6.31
2012£6.19
2011£6.08
2010£5.93

Can I pay less if an employee agrees to it in their contract?

Clauses in employment contracts that breach statutory regulations are not legally binding. Therefore if your contract offers a payment below the national minimum wage, even if your employee signs it, you are in breach of the regulations and your employee can make a claim against you.

What is the National Living Wage?

From April 2019, workers aged 25 and older will be entitled to receive the National Living Wage at the higher rate of £8.21 an hour. The minimum wage will still apply for workers aged 24 and under. The government is committed to increasing this every year.

Employers must ensure they are paying their staff correctly; the National Living Wage is enforced as strongly as the National Minimum Wage.

Calculating the National Minimum Wage

When calculating the time spent at work, you should include time spent travelling between work assignments, and time spent training. You should exclude time spent travelling between home and work and time away from work on breaks, holidays, sick leave and maternity leave.

For staff who are paid by the hour, the calculation of National Minimum Wage must be worked out over the period covered by each pay packet (e.g weekly or monthly) based on actual hours worked.

For salaried staff, the calculation of National Minimum Wage is based on the number of hours set out in the worker’s contract of employment. The employer must also pay at least the minimum wage for any hours worked in addition to what’s agreed in the worker’s contract.

For workers who are paid for each piece of work they complete, their pay can be based either on the actual hours worked or on the basis of a ‘fair rate’ for each piece of work completed. This ‘fair rate’ is the amount that allows an average worker to be paid the minimum wage per hour if they work at an average rate. This needs to include an allowance so that new workers (who will be slower than more experienced workers) are not disadvantaged.

Basic salary, bonus, commission and other incentive payments based on performance, all count towards National Minimum Wage as does, in some circumstances, an accommodation allowance. There are a number of elements of pay that do not count including pension payments or benefits in kind such as private medical insurance or other benefits (except an accommodation allowance); any extra pay for overtime or shift work. Only the basic rate of pay is taken into consideration for overtime worked; expenses; and any allowances or payments that are not attributable to their performance and is not part of their basic salary, for example an additional element of pay that is for London-weighting or an on-call allowance. 

How do I calculate the hourly rate? 

  • Step 1 Check their contract what does it say are their weekly annual hours. Input annual hours into calculator
  • Step 2 If they are paid in 12 monthly instalments divide their annual number of hours by 12, if they are paid 13 times a year then divide it by 13. This gives the average number of hours paid for each payment cycle
  • Step 3 Divide the amount of money they get in each pay month by the average number of hours worked each month.  This gives you the hourly rate.
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