A Guide to the National Minimum Wage.
A GUIDE TO THE NATIONAL MINIMUM WAGE Introduction All employers in the UK are required by law to pay workers the National Minimum Wage (NMW). The legislation that governs the NMW is the National Minimum Wage Act 1998. The Government has also introduced a National Living Wage that must be paid to all workers aged 25 and over. This guide details the current NMW rates and identifies which workers are entitled to receive the NMW and those who are exempt. It explains how a worker’s pay should be assessed to determine whether it complies. It also highlights the importance of keeping pay records and outlines the criminal penalties for failure to pay the correct NMW to employees.
The current National Minimum Wage rate From 1 April 2019, the hourly NMW rate is: • £8.21 for workers aged 25 and over (the ‘National Living Wage’). • £7.70 for workers aged 21-24. • £6.15 for workers aged 18-20. • £4.35 for workers aged 16-17. • £3.90 for apprentices aged 19 or under and for apprentices of any age who are in the first year of their apprenticeship. All other apprentices must be paid the NMW for their age. Apprentice NMW rates only apply to workers who are working under an apprentice contract or employed on a government-funded apprenticeship scheme. The NMW is reviewed annually by the Low Pay Commission.
Who is entitled to receive the National Minimum Wage? Workers of school-leaving age (usually 16) or over who are employed in the UK are entitled to the NMW (subject to certain exemptions outlined below), regardless of whether they are full time or part time, salaried employees, pieceworkers, home workers, agency workers, commission workers or casual workers. No employer is exempt from paying the NMW, regardless of the size of their business or organisation.
Workers who are not entitled to the NMW include: • Self-employed people. • Prisoners. • Volunteers and voluntary workers. • Family members of an employer who live in the employer’s home. • Company directors. • Individuals on a government employment programme such as the Work Programme. Go to www.gov.uk/national-minimum-wage/who-gets-the-minimum-wage for a full list of workers who are not entitled to the NMW.
Apprentices Apprentice pay varies depending on industry, but there is an apprenticeship National Minimum Wage (NMW) which applies to all 16–18-year-olds and to those aged 19 and over in the first year of their apprenticeship. This is generally increased every autumn. However, many employers pay their apprentices significantly more than the NMW, depending on their sector and industry. For more information visit gov.uk/topic/further-education-skills/apprenticeships.
Internships Internships are often positions requiring a higher level of qualification than other forms of work experience, where those leaving higher or further education are able to gain experience before beginning their professional career. However, the term ‘intern’ has no legal status. An intern is treated in the same way as someone doing work experience for NMW purposes. The question of whether interns should be paid is complicated. While they should certainly be reimbursed for travelling costs and any out-of-pocket expenses, there is no obligation for them to be paid NMW as, in many cases, they could be seen as volunteers. However, if your intern has a contract, works a regular working day and performs certain set tasks, they are certainly classed as a worker and as such should be paid at least minimum wage. For more information visit gov.uk/find-internship.
Output work Output workers, also called piece workers, are paid for the number of things they make (for example, articles of clothing) or tasks they do. If you employ output workers, you must choose between paying them either: • The National Minimum Wage (NMW) for every hour they work.
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• A fair piece rate for each piece produced or task performed. Fair piece rates Employers have to set a ‘fair piece rate’ so that even workers whose work rate is a bit below average will be able to earn the NMW. There are special rules for working out what is called a fair piece rate. You must find out how many pieces or tasks an average worker can complete in an hour. The fair piece rate is 1.2 times the rate a worker of average speed can achieve in an hour. This gives workers whose speed may be a bit below average (e.g. because they are new) the chance to earn the NMW anyway.
What makes up the National Minimum Wage? NMW pay is calculated on the worker’s gross pay (before tax and National Insurance (NI) have been taken off). Any sales commission or performance-related pay can count towards the NMW. Employers should not include the following payments when calculating a worker’s NMW pay: • Tips paid directly to workers by customers. • Any loans, advances, pension payments, redundancy payments, awards by a court or awards under staff suggestion schemes. • Benefits in kind, such as meals or luncheon vouchers. • Premium payments for overtime or shift work. • Allowances that are not consolidated into pay (for example regional allowances). • Use of a company car and petrol. • Refunds by the employer of any costs incurred by the worker in the course of doing their job, for example travel or the purchase of uniform. If a refund or deduction is made to a worker’s wage for work-related costs such as travel or uniforms, the employer must ensure that once these adjustments have been made to the worker’s wage, the worker still receives the NMW. Employers can deduct the following from a worker’s wages without reducing their NMW pay: • Penalties imposed on an employee for misconduct where the employer is permitted to make the deduction under the terms of the contract. • Deductions for income tax and NI. • Deductions made to repay any loans, advance of wages or purchase of shares. • Deductions made to repay any accidental overpayment of wages.
• Payments made by an employee to the employer for goods or services purchased where a written agreement is in place between the employer and employee. • Deductions of up to a certain amount, currently £52.85 per week from April 2019, made for the cost of accommodation provided by the employer. Deductions above this amount for accommodation count as reducing the worker’s pay. Employers should get advice on these deductions, as they can be complicated. Contact our membership advisors on 01565 626001 for more information. You can visit www.gov.uk/minimum-wage-calculator-employers for an online tool that can give you additional help for employers to calculate the correct minimum wage payments for employees.
Keeping records Employers must keep adequate records to prove that they have paid their employees the NMW. The National Minimum Wage Act 1998 does not define which records employers should keep. Records that would count as adequate include general records kept for tax and NI purposes, as these usually detail how much each worker has been paid over what period. Records must be kept for a minimum of three years after the relevant pay reference period. It is good practice to keep them for up to six years (five years in Scotland) as civil claims can still be made in this time. The records must be produced on request, whether this request is by the worker, HM Revenue & Customs (HMRC), an employment tribunal or a civil court. Under most circumstances, an employer has 14 days to produce the records following a request from the worker. Failure to do so may result in a penalty.
Who enforces the National Minimum Wage? HMRC has overall responsibility for enforcing the NMW. They the power to serve enforcement and penalty notices, and to carry out visits to business premises to determine that the minimum hourly rate has been paid. Any employer who refuses or wilfully neglects to pay a worker the NMW is committing a criminal offence and can be fined up to £20,000. Employers may also be ordered to make back payments to workers to cover the difference between the NMW and the wages they have actually received.
The difference between the National Living Wage and the Living Wage The National Living Wage, which is paid to workers aged 25 and over, is different from the Living Wage, which is set independently by the Living Wage Foundation. The Living Wage is calculated according to the basic cost of living in the UK and employers choose to pay the Living Wage on a voluntary basis.
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Tips • Employers must keep up to date with modifications to the NMW rate, which usually changes each year. • Employers must ensure that they keep sufficient records in case they need to prove their workers have been paid the NMW. • Refusing or wilfully neglecting to pay the NMW is a criminal offence and is punishable by a fine of up to £20,000.
Useful contacts HM Revenue & Customs (HMRC) is the government department responsible for collecting tax. It provides information and advice to individuals and businesses. Tel: 0800 917 2368 (Pay & Work Rights Helpline) Website: www.gov.uk/national-minimum-wage The Living Wage Foundation offers accreditation to employers that choose to pay the Living Wage. Tel: (020) 7043 9882 Website: www.livingwage.org.uk DISCLAIMER While all reasonable efforts have been made, the publisher makes no warranties that this information is accurate and up-to-date and will not be responsible for any errors or omissions in the information nor any consequences of any errors or omissions. Professional advice should be sought where appropriate.
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Updated Guide to the National Minimum Wage as per Government increases April 2019