Do I have to pay the National Minimum Wage?

What is the National Minimum Wage?

The National Minimum Wage (NMW) is the minimum rate of pay that most workers in the UK are legally entitled to receive.

If you employ staff, you’re responsible for making sure eligible workers receive at least the minimum rate that applies to them. The rate can depend on factors including their age and whether they’re an apprentice.

Minimum wage rates are normally reviewed each year, so it’s important to check that you’re using the current rates.

Most workers are entitled to the National Minimum Wage, but not everyone who works or carries out activities for a business qualifies.

Who is entitled to the National Minimum Wage?

Most people who are classed as workers and are at least school leaving age are entitled to the National Minimum Wage. This applies regardless of the size of the business they work for.

Workers who are normally entitled include:

• full-time and part-time workers
• casual workers
• agency workers
• workers on probation
• apprentices
• some trainees and interns
• workers paid according to the number of items they make or tasks they complete
• workers from overseas who are working in the UK.

Different minimum wage rates can apply depending on a worker’s age and whether they’re an apprentice.

Some people aren’t entitled to the National Minimum Wage. These can include:

• self-employed people running their own business
• company directors who don’t have a contract that makes them a worker
• volunteers and voluntary workers in qualifying circumstances
• certain students on work placements that form part of a UK further or higher education course
• people work shadowing where no work is performed
• some people on government employment programmes
• members of the employer’s family who live in the employer’s home and share in family tasks and activities.

There are other specific exemptions, so if you’re unsure whether someone working for your business is entitled to the minimum wage, check the current HMRC guidance.

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

No. A worker cannot agree to be paid less than the National Minimum Wage rate they’re legally entitled to.

A term in an employment contract that provides for pay below the applicable minimum wage doesn’t remove the employer’s legal obligation. If a worker has been underpaid, the employer may have to repay the arrears and could face enforcement action and financial penalties.

What is the National Living Wage?

The National Living Wage (NLW) is the statutory minimum wage rate that applies to workers aged 21 and over.

Younger workers who are at least school leaving age are entitled to the National Minimum Wage rate that applies to their age, while a separate rate can apply to eligible apprentices.

Minimum wage rates normally change each year, so employers should check the current rates and make sure workers are moved onto the appropriate rate when their age or circumstances change.

The National Living Wage is part of the statutory minimum wage system and employers are legally required to pay it where it applies.

How do I check that I’m paying at least the minimum wage?

To check that you’re paying at least the minimum wage, you need to consider both the pay that counts for minimum wage purposes and the hours that need to be included.

The calculation is made for each pay reference period, usually the period for which the worker is paid, such as a week or month, up to a maximum of one month.

Hours:

How the hours are calculated depends on the worker’s working arrangements. HMRC categorises work as:

• time work – where the worker is paid according to the hours worked
• salaried hours work – where they’re paid an annual salary for a set number of hours
• output work – where they’re paid according to the number of items produced or tasks completed
• unmeasured work – work that doesn’t fall into the other categories.

Depending on the type of work, time that counts can include time spent working, undertaking required training and travelling between work assignments. Ordinary travel between home and work generally doesn’t count. Some periods when a worker isn’t working, such as rest breaks and holidays, are also normally excluded from the hours used for minimum wage purposes.

There are detailed rules covering matters such as sleep-in shifts, on-call time, travelling for work and salaried workers working additional hours, so check the HMRC rules where these apply.

Pay:

Not everything a worker receives counts towards minimum wage pay. Basic pay and certain performance-related payments, such as commission and bonuses, can count.

Some payments and benefits don’t count, and certain deductions or payments made by a worker in connection with their employment can reduce the pay that counts for minimum wage purposes. Special rules also apply where an employer provides accommodation.

This means that simply dividing a worker’s gross pay by the hours they worked won’t always show whether you’ve complied with minimum wage law.

HMRC provides guidance to help employers identify the hours and pay that should be included when checking minimum wage entitlement.