10.1 Introduction to the UK National Minimum Wage
The National Minimum Wage is a statutory minimum hourly wage rate for
employees and workers.
In order to meet HMRC requirements
and stay within the law, it is important to know what the National Minimum Wage
is for your employees.
In this module, we provide
information on who is entitled to the National Minimum Wage and a general
overview of how to make sure you are calculating it correctly for your
workforce. In this module, we will also touch upon what happens if you ignore
this obligation.
The National Minimum Wage changes
annually on April 1, after review by the UK government.
In order to be entitled to the
National Minimum Wage, employees need to be of school-leaving
age, which varies slightly throughout the UK. It applies to most
kinds of paid work, including apprenticeships. Difficulties with adhering to
the National Minimum Wage rules may arise when an employee is paid in a
different way to the norm, e.g. when they are paid for the work they do in
piece work, or a task which is a fixed price. We will discuss later in this
module how to work out payment for this type of work to ensure you stay within
legal guidelines.
The National Living Wage
Additionally, you have the National
Living Wage to consider. The National Living Wage came into force in April 2016
with the aim of ensuring workers over the age of 25 years could earn sufficient
for a normal standard of living. In 2021, the age threshold was reduced to 23
years. In April 2024, the age will be reduced to 21 years (for anyone
younger than this, the National Minimum Wage will apply).
For details on the current National
Minimum Wage and the National Living Wage rates, please go to the UK government website.
Most people who work are entitled to the National Minimum wage and may
include:
- -Part-time
staff within your company
- -Casual
workers; this also includes those you only employ for one day or even one
hour
- -Agency
workers
- -Those
on zero-hours contracts
- -Workers
who are paid by piece work (we will discuss this further later in this
module)
- -Apprentices
(we will discuss this further in our next section)
- -Trainee
staff
- -Staff
who are on a probation period
- -Agricultural
workers
- -Foreign
workers
- -Seafaring
workers
- -Workers
who are off-shore
As an employer, you need to ensure
that you are paying your staff the correct wage for their particular age if you
are working to minimum wage rates. Any contract which is for an amount below
the National Minimum Wage is not legally binding, and there are consequences
for any employer who pays an employee an amount below these rates, unless it is
a result of fair deductions, which will be discussed shortly. We will talk
about these consequences a little further in the later part of this module;
however, if you adhere to the rates and don't fall below them (not including
those deductions we will discuss shortly), then you are within the law and HMRC
guidelines.
10.2 How Does the National Minimum
Wage Affect Apprentices?
Apprentices are entitled to the
National Minimum Wage, but the rate at which they get paid depends on both
their age and how long they have been an apprentice.
This is different from normal
workers, so familiarise yourself with the rules, to make sure you are working
to the correct amount for any apprentices you have on your payroll system.
·
Apprentices aged 16-18 years should be paid the apprentice rate for the
National Minimum Wage.
·
Apprentices aged 19 and over who are in the first year of their
apprenticeship should be paid the apprentice rate for the National Minimum
wage.
·
Apprentices aged 19 and over who are in the second or further years of
their apprenticeship should be paid the National Minimum Wage or the National
Living Wage, depending on their age.
Current apprentice rates can be found
along with the standard National Minimum Wage rates on the UK government website
10.3 Who is Not Entitled to the
National Minimum Wage?
There are certain categories of
workers who are not entitled to the National Minimum Wage.
It is important to know about these
so you can identify who to pay differently.
The following workers are not legally entitled to the National Minimum
Wage:
- -Self-employed
workers, running a business independently
- -Company
directors
- -Volunteers
- -Workers
engaged in a Government employment programme - seek advice on which
programmes are included in this step, as this does not cover all schemes
available
- -Family
members of the employer, who are also living in the employer's home
- -Non-family
members living in the same home as the employer, who also engage in
leisure activities, such as an au pair, for example
- -Anyone
under school leaving age
- -Higher
and further education students who are on work placement for up to one
year
- -Those
on a Government-approved pre-apprenticeship scheme
- -Those
on a European Union programme
- -Those
on Job Centre Plus work trials which last for 6 weeks
- -Armed
forces workers
- -Share
fishermen
- -Prisoners
- -Anyone
working or living in a religious community
- -Work
experience students
- -Those undertaking job shadowing
These groups of people are not
currently automatically entitled to be paid the National Minimum Wage, and in
that case, you can pay the rate you set at the time of employing them; however,
it is important to remain fair at all times in terms of how much you pay your
employees.
10.4 What Happens If You Do Not Pay
An Employee the National Minimum Wage?
It is against the law to pay an
eligible member of staff a rate below the National Minimum Wage and it is also
illegal to create false records relating to this.
You have to pay them the National
Minimum Wage, or above it - but anything below is not acceptable. HMRC are able
to do spot checks at any time, and if you are found to be underpaying staff
according to their particular applicable rate, you will be instructed to pay
arrears immediately, records will be investigated in great detail to ascertain
how much income tax and National Insurance back pay is required, and a penalty
at the very least will be enforced. This is the minimum you can expect -
employers who are found to be knowingly underpaying their staff can be 'named
and shamed' by the UK Government.
If you are unsure whether you are
paying your staff correctly, HMRC provides online calculators you can use to
check your figures, giving you the correct information to work on. It is always
a good idea to make use of them, as they have been designed to help employers
remain within guidelines with ease. You must also keep records on how much you
are paying your staff, as we have mentioned in previous modules, and these
records must be kept for three years after the current tax year they pertain
to. HMRC can ask to see these records at any time, so they must be up to date,
accurate, kept in a safe and secure manner, and easily accessible in the event
of a spot check.
10.5 Different Types of Work and How
to Calculate the National Minimum Wage
Most things in life are rarely
straightforward and thankfully this is why HMRC have developed the
aforementioned series of online calculators to ensure that you are paying your
staff correctly.
This is especially useful in the
event of employment of staff who do not fall into the simplest of categories.
Much of this is down to work patterns, e.g. staff who are not your regular
full-time or part-time employees, such as those employed to complete one
particular task, with a fixed payment relating to it.
When paying staff you need to deduct
certain items from their gross pay (i.e. statutory or voluntary deductions),
and generally speaking, a member of staff is not paid below the National
Minimum Wage because of deductions, however; it can happen in some cases.
For instance, income tax,
National Insurance, student loan repayments, repayment of overpaid wages,
accommodation provided by the employer, repayment of wage advances or loans,
and penalty charges for misconduct are items which can take a member of staff's
final payment below the National Minimum Wage, however, the basic amount they
were paid before these deductions must have been above the
required rate.
It is not always a straightforward
calculation if your staff work slightly different hours or in a different
format, and we need to explore how to work this out a little more.
Workers paid by the hour
If a member of staff is being paid by
the hour, then you still need to make sure that their hourly rate meets the
requirements of the National Minimum Wage.
Workers on an annual salary
If a member of staff is paid a set
salary per year, according to the number of hours they are contracted, the wage
should be weekly or monthly paid in set amounts, the same every single time
they are paid. Again, use online calculators to make sure the amount is
correct, and work to the guidelines given.
Workers paid per task or on piece work
If a member of staff is paid per
piece of work they do, then this still has to meet the requirements of the
National Minimum Wage. These members of staff are on what is called output
work. If the calculations become too complicated then the staff member must be
paid what is called a 'fair rate' for the work they, do, which basically allows
the workers to be paid the minimum wage if they were paid per hour. This needs
to be worked out carefully, and again, online calculators should be used to
double-check your figures.
Workers who undertake unmeasured work
If a member of staff works on a task
which is difficult to measure, this is called 'unmeasured work'. This could be
where they were employed to do a specific task and are being paid a set amount
for this piece of work. When working out how much to pay them, you need to come
to an agreement on the daily number of hours worked, and this must be
realistic, i.e. the amount of work which needs to be done, how long it will
realistically take, and an hourly rate worked out from this. The payment at the
end must again equate to the National Minimum Wage.
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