As an employer it is your responsibility to keep abreast of any changes in the law, not least the requirement to pay eligible workers the national minimum wage – and to do so in accordance with the correct rate.
No matter how small your enterprise, you are statutorily obliged to pay almost all workers the national minimum wage.
Below we look at various issues relating to the minimum including how it is calculated, current rates and the consequences of any failure to comply with this minimum statutory requirement.
What is the national minimum wage?
The national minimum wage is the minimum pay per hour almost all workers in the UK above compulsory school age are entitled to by law.
It is an employee right enshrined by the National Minimum Wage Act 1998 and the National Minimum Wage Regulations 2015.
Workers entitled to the national minimum wage
Under the legislation a worker must be at least school leaving age in order to be statutorily entitled to the minimum wage. This is taken from the last Friday in June of the school year they turn 16.
Almost all workers over compulsory school leaving age are entitled to the national minimum wage. This includes casual, part-time, temporary and even agency workers. The regulations also extend to workers on probation and apprentices (albeit with special rates applicable for apprentices as set out below).
Under the relevant legislation there are, however, limited categories of workers who do not qualify for the minimum wage including voluntary workers, those on student work placements and government employment schemes.
The current national minimum wage rates
The rate you will need to pay a worker will vary depending on their age, as well as whether the worker is also an apprentice. The current rates in accordance with the National Minimum Wage (Amendments) Regulations 2018 are as follows (as of April 2018):
- For workers aged 25 and over – £7.83 per hour
- For workers aged 21 to 24 – £7.38
- For workers aged 18 to 20 – £5.90
- For workers of school leaving age up to 17 – £4.20
For an apprentice, if they are aged 19 or under or, alternatively aged 19 or over but in the first year of their apprenticeship they are entitled to a rate of £3.70 per hour (as of April 2018). An apprentice will become entitled to the higher standard minimum wage for their age once they are both aged 19 or over and have completed the first year of their apprenticeship.
As an employer you should be checking the applicable rate on a yearly basis as the rates are subject to annual review by the Low Pay Commission.
In circumstances where an increased rate applies, either on review or, alternatively, an employee reaches a different age bracket, the applicable new rate will apply to the next pay reference period that begins on or after that date. For example, an employee paid at the end of each month will be entitled to receive the new rate of minimum wage from 1st May 2018 onwards.
However, if a worker already receives above the national minimum wage, there is no legal obligation on you as the employer to increase their pay annually with any increase in the minimum rates.
Deductions when calculating
When calculating whether you have paid a worker the national minimum wage you will need to divide the level of remuneration by the numbers of hours worked in the applicable pay reference period, for example, workers paid weekly will have a pay reference period of one week.
There are also some deductions that can be factored into this calculation including, for example, accommodation where this is provided as part of a worker’s remuneration package. Whilst the worker will receive a lower hourly rate than the national minimum wage, the accommodation provided will be treated as making up the shortfall.
However, no other benefit in kind such as a childcare or meal vouchers can count towards the minimum wage. There are also other payments that should not be included, for example, travel or other work-related expenses.
Calculating minimum wage for different types of work
The national minimum is calculated using an hourly rate although this applies to all eligible workers irrespective of whether they are paid by the hour.
Under the regulations there are different ways of calculating a workers’ hourly, or equivalent hourly rate, to check that you are correctly paying the national minimum wage. This includes timework, ie; paid by the hour; salaried hours, ie; paid annually; output work, ie; paid per piece of work; or otherwise unmeasured.
You will also need to calculate what counts as working time. This includes time at work, when required to be working or on standby. It also includes travel in connection with work, but does not include travel between home and work.
Can you contract out of paying the national minimum wage?
As an employer you have a statutory duty to pay the national minimum to all eligible workers. Whilst you are free to agree whatever terms you wish under the contract of employment, you cannot seek to contract out of, or vary, this minimum statutory right.
Any term seeking to limit or restrict this right will not be enforceable and your employee will retain the right to be paid the minimum wage prescribed by law.
Consequences of failing to pay
It is an offence to pay a worker less than the minimum wage. It is also an offence to falsify payment records or fail to keep payment records for less than 3 years.
In circumstances where you fail to pay the minimum wage an employee may file a complaint with HM Revenue and Customs, anonymously or otherwise. You may be ordered to pay any assessed arrears, together with a financial penalty.
Alternatively, an employee may seek redress before the employment tribunal for non-payment of the minimum wage, as well as for unfair dismissal in circumstances where a worker has been dismissed for reasons relating to a minimum wage dispute.
The difference between the national and real living wage
A distinction must be drawn between the national living wage and what’s known as the real living wage.
The national living wage is a term applied by government to the highest rate of minimum wage as applicable to workers over 25. The real living wage on the other hand is a rate set independently by the Living Wage Foundation based on the cost of living in the UK. This applies to all workers over 18.
There are two applicable rates for the real living wage, one for the UK (currently £8.75) and a higher rate specifically for London (currently £10.20).
The real living wage is not compulsory although many employers voluntarily elect to pay this higher rate, rather than the government minimum, as it reflects the actual cost of living.
Should I seek legal advice?
In circumstances where you underpay an employee, the consequences for you and your business can be serious.
The calculation for the pay reference period, remuneration and working hours can often be confusing and mistakes are commonly made. It is therefore important as an employer to seek legal advice if you have any concerns as to whether or not you are complying with the statutory requirements relating to minimum wage.
By securing expert legal advice from an experienced employment law specialist you can be confident that you are complying with the law, whilst meeting the economical and operational needs of both your business and workforce.
Your lawyer will be able to help you to comply with the minimum requirements and provide advice and representation in the event of any pay disputes.
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.