National Minimum Wage

Every UK employer has to pay the National Minimum Wage but what does it mean for your business? Read our step-by-step guide...

National Minimum Wage

The National Minimum Wage sets out the hourly rates almost all UK workers are entitled to by law and every employer, no matter how small, must pay.

Designed to provide employees with decent minimum standards and fairness in the workplace, the National Minimum Wage helps small businesses compete on the basis of the quality of goods and services provided rather than low prices based on low rates of pay.

The law was first introduced on 1 April 1999 by the National Minimum Wage Act 1998 and the National Minimum Wage Regulations 1999.

Set by government, the headline figure is based on guidance provided by the independent body the Low Pay Commission.

What is the National Minimum Wage?

The Minimum Wage is a legal right which covers almost all workers above compulsory school leaving age. There are no exemptions for employers to pay the Minimum Wage because of the size of the business, sector, job or region.

It’s a criminal offence for employers not to pay someone the National Minimum Wage or falsify payment records.

What are the National Minimum Wage rates?

There are different Minimum Wage rates for different groups of workers, as follows:

  • Adult workers aged 21 and over, excluding “accredited” trainees and some group, must be paid a minimum £7.05 an hour.
  • 18-20 year-olds must be paid a minimum £5.60 an hour.
  • 16-17 years olds must be paid a minimum £4.05 an hour.
  • Apprentices must be paid a minimum of £3.50 an hour. Apprentices aged 19 an over must be paid the Minimum Wage applicable to their age after one year of their apprenticeship.

Who gets the National Minimum Wage?

Employees must be of school leaving age (usually aged 16) to be paid the Minimum Wage and employees with a contract of employment are covered by the Minimum Wage legislation, as are freelancer workers who are not genuinely self-employed.

Employers must also pay the Minimum Wage to:

  • Part time workers
  • Casual labourers (someone hired for a day for example)
  • Agency workers
  • Workers and homeworkers paid by the number of items they make
  • Apprentices (see Minimum Wage rates above)
  • Trainees and workers on probation
  • Disabled workers
  • Agricultural workers
  • Foreign workers
  • Seafarers
  • Offshore workers

Who is not entitled to the National Minimum Wage?

Employers do not have to pay the Minimum Wage to the following workers:

  • Self-employed people
  • Company directors
  • Volunteers or voluntary workers
  • Workers on a government employment programme (Work Programme etc.)
  • Workers younger than the school leaving age (usually under 16)
  • Higher and further education students on a work placement of up to one year (although post-graduate students, and students taking holiday and “gap” year jobs, must be paid the minimum.)
  • Workers on government pre-apprenticeships schemes
  • 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, and aren’t charged for meals or accommodation such as au pairs
  • People on a European Union programme such as Leonardo da Vinci, Youth in Action, Erasmus and Comenius
  • People working on a Jobcentre Plus Work trial for six weeks
  • Members of the armed forces (although Civilian MoD workers are covered)
  • Share fishermen
  • Prisoners
  • People living and working in a religious community

How to calculate hourly rates to pay the National Minimum Wage

It can be complicated to calculate hourly rates of pay of workers for the National Minimum Wage, and it’s advised that you also consult the HMRC’s detailed guide here.

What counts as pay?

The Minimum Wage is based on gross pay so most elements of pay are taken into account.

Payments included are:

  • Merit or performance-related pay
  • Bonuses
  • Tips paid through payroll
  • Deductions of a proper penalty (e.g. for misconduct)
  • Deductions for an advance of wages
  • Deductions to pay for shares
  • Sums recovered for accidental overpayments
  • Union subscriptions
  • Workers’ pension contributions
  • Unforced payments by the worker for employer’s goods and services
  • Accommodation provided up to a specified limit

Payments excluded included:

  • Advance of wages
  • Loans
  • Pension payments and retirement lump sums
  • Redundancy payments
  • Rewards under a staff suggestion scheme

Elements of gross pay are also excluded, and include:

  • Overtime and shift premium payments
  • Special allowances (such as unsocial hours payments, dangerous conditions payments, and location allowances)
  • Expenses or allowances for travel, clothing etc.
  • Refunds for money spent on materials, tools etc.

No benefits in kind count towards the Minimum Wage such as meals, luncheon vouchers, cars, and employers’ pension contributions.

Pay reference periods

Workers do not have to be paid the Minimum Wage for each hour worked but must be paid the Minimum Wage, on average, for the time worked in a pay reference period.

Pay reference periods are usually set by how often someone is paid, e.g. one week, one month or 10 days. A pay reference period cannot be longer than 31 days.

Calculating hours

The number of hours for which workers must be paid the National Minimum Wage is worked out according to the type of work they do:

Time workers and salaried staff: The hours for which the Minimal Wage is payable normally includes time spent at or near the workplace, travelling time on business and training time.

Output work: For workers paid purely according to their productivity, either the Minimum Wage must be paid for each hour worked, or a written agreement must be made with the worker that gives a ‘fair estimate’ of the number of hours they will work.

Unmeasured work: For workers where hours are not specified either the Minimum Wage must be paid for each hour worked, or an agreement reached on the “daily average” of hours to be worked.

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