Paul Tew, small business consultant and freelance advisor, outlines what employers must do to calculate the National Minimum Wage (NMW) correctly and ensure this is paid for all relevant hours worked by relevant workers.

New rates

The Low Pay Commission (LPC) has made the following recommendations, which the Government accepts in respect of the NMW rates for certain apprentices and workers in respect of pay reference periods starting on or after Monday, 1 April 2019. The new NMW rates for pay reference periods starting on or after 1 April 2019 are:

  • National Living Wage (NLW) (25 years and older) — £8.21 per hour

  • adult rate (21–24 year olds) — £7.70 per hour

  • development rate (18–20 year olds) — £6.15 per hour

  • young persons’ rate (16–17 year olds) — £4.35 per hour

  • apprentice rate — £3.90 per hour.

Example

Monthly paid worker, aged 34, paid on the 15th of the month, has a pay reference period which runs from 16 March 2019 to 15 April 2019. The new NLW rate must first be applied for the pay reference period that starts Tuesday, 16 April 2019 which is paid on 15 May 2019.

The accommodation offset rate is also set to increase from 1 April 2019 to £ 7.55 per day or £52.85 per week. Where an employer provides living accommodation to a worker free of charge, the notional amount of the accommodation offset counts towards minimum wage pay.

Apprentices employed on certain apprenticeship schemes or workers engaged under a contract of apprenticeship under the age of 19 or aged 19 or over and in the first year of their apprenticeship are entitled to be paid the apprentice rate of the NMW. All other apprentices must receive the relevant minimum wage rate for their age.

On current forecasts, the LPC estimates that the NLW will reach £8.62 in April 2020. The NLW must not be confused with the living wage rates which are independently calculated and provide a benchmark for employers who choose to pay their employees a rate that meets the basic cost of living in the UK. The UK living wage rate is voluntary for employers to apply, unlike the mandatory NLW rate which must be paid to all relevant workers.

Deductions for the minimum wage

A deduction cannot normally reduce an employee’s pay below the NMW even if the employee agrees to it, except if the deduction is for any of the following:

  • income tax and/or National Insurance contributions

  • allowable under the worker’s contract which relate to specific misconduct or payment by the worker of a specific penalty, eg a shortfall in the till if a shop worker

  • repayment of a loan or advance of wages

  • repayment of an accidental overpayment of wages

  • buying shares, other securities or share options in the business

  • living accommodation provided by an employer

  • employee own use, eg union subscriptions or pension contributions

  • voluntary payments by the worker for the purchase of goods and services from an employer, for example, payments for meals the worker has freely chosen to buy in the workplace canteen (however, if an employer deducts money from the worker’s pay in these circumstances this will reduce minimum wage pay).

Working hours for which NMW must be paid

If a worker is contracted to work “sleep-in” shifts then payment of the NMW depends on the individual circumstances, including what the contract provides and what is happening in practice.

If the employer provides suitable facilities for sleeping, the NMW must be paid for time when the worker is required to be awake for the purpose of working, but not for time the worker is permitted to sleep. However, if suitable sleeping facilities are not provided then the NMW must be paid for the entire shift.

The position is different where workers are working and not expected to sleep for all or most of a shift even if there are occasions when they are permitted to sleep (such as when not busy). In this case, it is likely that the NMW must be paid for the whole of the shift on the basis that the worker is, in effect, working all of that time, including for the time spent asleep.

When considering travelling time for NMW purposes, it is necessary to identify the time the worker spends travelling for the purpose of working. A primary consideration will be whether such travelling is in connection with the employment. Travelling for the purpose of working, for NMW purposes, includes the time a worker spends travelling between appointments which need to be carried out at different places, to which the worker is obliged to travel. It is not necessary to include time spent travelling between home and work and time spent away from work on rest breaks.

Prohibition of unpaid work experience

The Unpaid Work Experience (Prohibition) Bill will amend current law to introduce regulations ensuring that a person undertaking work experience who has ceased to be of compulsory school age, but has not attained the age of 26 is eligible to receive the NMW at the rate specified for workers of the person’s age. The Bill will provide for a maximum period of unpaid work experience of four weeks.

If the Bill is enacted, this will mean that anyone doing work experience, for a continuous or non-continuous period which exceeds four weeks, is paid beyond this point at least the relevant minimum wage rate. The Bill is designed to address a perceived “loophole” in the rules relating to the NMW, whereby people who appeared to be engaged in an organisation as a worker are not paid the NMW because they are said to be doing work experience.

When considering unpaid work trials, in determining whether the NMW must be paid or not, employers need to determine if this is genuine work experience (ie is the individual doing little more than observing what is happening) or is the individual also doing some actual work from which the employer is benefiting from the “free labour.”

Five points to know about minimum wage enforcement

  1. If HM Revenue & Customs (HMRC) suspects that there has been an underpayment of the minimum wage,its officers can enter an employer’s premises, inspect records (worker payslips, time records etc), interview staff and pass information on to workers.

  2. If an HMRC compliance officer discovers that the minimum wage has not been paid to all relevant workers, the officer may serve a notice of underpayment on the employer.

  3. If HMRC officers issue notices when the employer is found to owe arrears of NMW to its workers at the beginning of the investigation which is the date the employer is first contacted by HMRC. The employer will receive a notice even if it has repaid some or all of the outstanding amounts during the course of the investigation.

  4. Where HMRC estimates the potential arrears owed are low and the number of workers is small, a nudge letter may be issued to encourage employers to check for underpayment, repay any arrears and declare the repayment to HMRC.

  5. Where employers do not respond to a nudge letter there is a clear escalation route to a full compliance intervention, including penalties, prosecution and referral for naming where underpayments are identified.

Last reviewed 27 March 2019