Overview of the minimum wage

National Minimum Wage rates

Since April 1999 most workers in the UK have been legally entitled to a minimum wage. The national minimum wage (NMW) rates are set based on recommendations of an independent body, the Low Pay Commission (LPC). The current rates (as of October 2012) are:

• Workers aged 21 and over: £6.19 per hour.
• Workers aged 18-20: £4.98 per hour.
• Workers aged under 18: £3.68 per hour.
• Apprentices under the age of 19 or those in the first year: £2.65 per hour.
• Apprentices aged 19 or over and past their first year: rate appropriate to their age (see above).

Exemptions

The minimum wage is not applicable to:

• self-employed people;
• company directors;
• volunteers or voluntary workers;
• workers on a government employment programme, (eg the Work Programme);
• family members of the employer living in the employer’s home;
• non-family members living in the employer’s home who share in the work and leisure activities, are treated as one of the family and aren’t charged for meals or accommodation (eg au pairs);
• workers younger than school leaving age (usually 16);
• higher and further education students on a work placement up to one year;
• workers on government pre-apprenticeships schemes;
• people on the following European Union programmes: Leonardo da Vinci, Youth in Action, Erasmus, Comenius;
• people working in a Jobcentre Plus Work trial for six weeks;
• members of the armed forces;
• share fishermen;
• prisoners;
• people living and working in a religious community.

What is working time?

Working time, for which the NMW will usually have to be paid, includes, for all types of work, time spent:

• at work and required to be working, or on standby near the workplace (but don’t include rest breaks);
• not working because of machine breakdown, but kept at the workplace;
• travelling on business;
• training or travelling to training during normal working hours;
• working during a time when workers are allowed to sleep, if the employer provides a place to sleep.

What is not working time?

Not counted as working time is that spent:

• travelling between home and work;
• away from work on rest breaks, holidays, sick leave or maternity leave;
• away from work because of industrial action;
• at the workplace but not working during a time when workers are allowed to sleep (if you provide a place to sleep).

Hours for which NMW must be paid

The number of hours for which you are obliged to pay your workers NMW is worked out differently according to the types of work they do. There are four types of work and the rules and calculation of hours differ for each. They are:

• time work;
• salaried-hours work;
• output work; and
• unmeasured work.

Time workers

A time worker is one who is paid according to the number of hours they are at work. Time work is also where a worker is on a contract for a certain amount of time and is paid for the hours done. Basically, anybody whose pay goes up or down depending on the actual hours they work is likely to be doing time work.

For these workers, the average hourly pay has to be at least the NMW, worked out over the period each pay packet covers.

Salaried-hours workers

A worker is doing salaried hours work if they’re paid:

• a set basic number of hours each year under their contract;
• an annual salary in equal weekly or monthly amounts.

Salaried hours workers’ contracts don’t have to state the basic number of hours as an annual figure, but it must be possible to work this out. Employers can then use this figure to ensure the rate of pay is at least the NMW. To work out the hourly rate:

• assess the basic annual hours in the worker’s contract;
• divide this by the number of times they get paid each year – this gives the average number of hours covered by each pay packet;
• divide the amount they get in each pay packet by this figure. This provides the worker’s hourly rate.

Output workers

Output work is paid for according to the number of things that a worker makes or tasks they perform. It is also known as piece work or fair piece rates.
When paying output workers you can either:

• pay the national minimum wage (NMW) for every hour they work;
• pay them at least a fair piece rate for each piece produced or task performed (rated output work).

The 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.

To work out the fair piece rate employers should:

• assess the average rate of work per hour (tasks or pieces completed);
• divide it by 1.2;
• divide the hourly minimum wage rate by that number to work out the fair rate for each piece of work completed.

To work out the average rate of work, employers should:

• test some or all of the workers - the group tested must be typical of the whole workforce;
• work out how many pieces of work have been completed in a normal, average working hour;
• divide this by the number of workers to work out the average rate;

Note: If the work changes significantly, employers will need to do another test to work out the new average rate.

Unmeasured worker

Unmeasured work is that which does not fall into any of the previous three categories. It could include work where tasks need to be done, but not within any specified hours or times, or work where you require the worker to work when needed or when work is available.

You must pay at least the national minimum wage (NMW) to people who do unmeasured work, and this could be done by either:

• recording every hour worked; or
• reaching a daily average agreement of hours to be worked.

Daily average agreements of hours must:

• be agreed in writing;
• be made before the start of the pay reference period they cover;
• say how many hours the work should take each day (on average).

Record keeping and employer checks

Employers who do not pay their workers the NMW or falsify payment records are committing a criminal offence.

Workers who are found to be earning less than the minimum wage must be paid any arrears owed to them straight away by their employer.

HM Revenue & Customs (HMRC) officers have the power to carry out checks at any time and ask to see payment records. They can also investigate employers, following a worker’s complaint to them.

If HMRC finds that an employer hasn’t been paying the correct rates, any arrears have to be paid back immediately. There will also be a penalty.

It’s the employer’s responsibility to keep sufficient records proving that they are paying the minimum wage - most employers use their payroll records as proof. All records have to be kept for three years.

Sufficient records might include details of:

• gross pay payments
• payments for overtime and shifts
• absences
• contracts and agreements between you and your workers

Disputes

Workers who think their pay is below the minimum wage rate should talk to their employer first. If problem is not resolved, they can ask the employer in writing to see their payment records. The worker has the right to be accompanied and can make copies of the records. If arrears in NMW payments are found, these must be repaid.

Workers can also call the confidential helpline (0800 917 2368) to help them solve a payment dispute or fill in an enquiry form or a complaint form.

If the employer does not pay, HM Revenue & Customs (HMRC) can send them a notice for the arrears plus a penalty for not paying the minimum wage. If the employer still refuses to pay HMRC can take them to court on behalf of the worker.

Workers can also go directly to the employment tribunal. If they have been dismissed because of a NMW dispute, they can also take the employer to an employment tribunal for unfair dismissal.

Criminal offences and workers’ rights

There are six criminal offences relating to the NMW, each carrying a maximum fine of £5000. They are:

• Refusal or wilful neglect to pay NMW.
• Failure to keep sufficient NMW records.
• Keeping false records.
• Producing false records or information.
• Intentional obstruction of a compliance officer.
• Refusal or neglect to give information to a compliance officer.

Getting legal advice

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