The national minimum wage and the national living wage

An employer must pay their workers a minimum amount per hour as defined by law. This is called the national minimum wage (NMW). Workers aged 25 and over are entitled to the national living wage.

Who is covered by the NMW?

NMW applies to all workers, with certain exceptions such as:

  • those under the age of 16
  • apprentices under the age of 26 during their first year of apprenticeship
  • those who are genuinely self employed
  • family members working in the family business
  • people working and living as part of a family (e.g. au pairs)
  • voluntary workers

What are the rates of NMW and NLW?

From 1 April 2017 From 1 October 2016
National Living Wage (25 and over) £7.50 £7.20*
21 - 24 year old rate £7.05 £6.95
18 - 20 year old rate £5.60 £5.55
16 - 17 year old rate £4.05 £4.00
Apprentice rate £3.50 £3.40

*From 1 April 2016

How is the NMW calculated?

The Regulations set out a rather complex procedure detailing the calculation of the NMW.

Benefits in kind, expenses, certain allowances and most deductions are not included. Enhanced payments for particular work will not count, but incentive or profit related payments will be included.

What working time counts for NMW?

Job-related travelling and training time is included. Periods of holiday or absence do not count (even though holiday pay is now obligatory), nor does time taken as rest breaks or industrial action.

What if the pay is not time-related?

The previous 'fair estimate agreements' has been replaced, and employers must pay their workers the minimum wage for every hour they work or a 'fair piece rate' initially set at 100% of the minimum wage.

What about family businesses?

Although there is an exemption for family members working in the family business, the regulations specifically refer to the employer's family. If the family business (i.e. the employer) is a limited company, then it does not have a family. Even if the family business operates as a sole trade or partnership, the only family members exempted are those who actually live at home.

What about company directors?

In common law, company directors are classed as office holders and can do work and be paid for it in that capacity. This is true no matter what sort of work they do and how it is rewarded.

The NMW does not apply to office holders, unless they also have contracts which make them workers.

It is unlikely that a company director will have an implied contract which makes him a worker. The rights and duties of an office are defined by that office, and it exists independently of the person who fills it. Directors can be removed from their office by a simple majority of the votes cast at a general meeting of the company. This contrasts with the rights and duties of an employee which are defined in a contract of employment.

What records have to be kept?

For workers earning in excess of £12,000 per year, employers simply have to keep sufficient records to demonstrate that the NMW has been paid. For workers earning less than £12,000 per year, full details of the NMW calculation must be kept.

Records should be kept for 6 years.

What rights does the worker have?

Individuals have the right to apply to a court or tribunal for non payment of the NMW. They are also protected from suffering any loss for such proceedings. There is a national helpline for Pay and Work Rights (0800 917 2368) which takes complaints from workers, employers and third parties. These lines operate Monday to Friday from 8 a.m to 6 p.m.

Telephone 0845 917 2368
Text phone 0800 121 4042
Callers can be assisted in 30 different languages

 

What about employers who do not comply?

The minimum wage regulations are enforced by HMRC, who can issue enforcement notices.

Employers face a penalty if HMRC discover that the NMW has not been paid. Workers are entitled to the arrears of wages at current rates.

Penalties for non compliance

Further there is a penalty which is calculated based on the underpayments and this is set at 100% of the underpayment subject to a minimum of £100 and maximum of £20,000 per employee underpaid. Where employers comply fully with any notice of underpayment within 14 days of service there is entitlement to a discount of 50% on the penalty.

There are no excuses or exceptions

HMRC has published a list of those companies who were found not paying the NMW. Some of these companies were well known, household names. HMRC has made it clear that there are no excuses or exceptions. To emphasis the point they published a list of the excuses thy have received.

These include:

“The employee wasn’t a good worker so I didn’t think they deserve to be paid the NMW.”

“I thought it was OK to pay foreign workers below the NMW as they aren’t British and therefore don’t have the right to be paid.”

“She doesn’t deserve the NMW because she only makes the tea and sweeps the floors.”

“I’ve got an agreement with my workers that I won’t pay them the NMW; they understand and they even signed a contract to this effect.”

“My accountant and I speak a different language – he doesn’t understand and that’s why he doesn’t pay my workers the correct wages.”

The message? Make sure your pay rates are not below the legal requirement.