As from October 2005 the national minimum wage (NMW) increases, which means that employees aged 22 and over must be paid at least £4.85 per hour, and those aged between 18 and 21 must get at least £4.10 per hour. For the first time, those aged 16 and 17 must be paid a minimum of £3 per hour.
If employees are on an accredited training course – a government-approved vocational qualification – and are starting a new job with a new employer, they are legally entitled to earn £4.10 an hour. However, apprentices under the age of 26 do not have to receive the NMW.
Four types of work are defined under the National Minimum Wage Act 1998:
Time work: employees are paid for the amount of time they work
Output work: employees are paid for the amount (or ‘pieces’) of work they do
Salaried hours work: employees are paid an annual salary and are not entitled to any other payment except a bonus for good performance
Unmeasured work: hours of work are not specified and employees are expected to work when needed.
As well as the basic rate of pay, the only inclusions within the NMW are tax and National Insurance contributions (NICs), productivity bonuses, performance or profit-related pay, incentive pay, and any deduction or payment from the employee for the employer to retain (such as an advance of wages).
Employees must pay 11% NICs, and employers must pay 12.8% NICs on earnings of more than £91 per week or £395 per month. If an employee earns up to £2,020 a year they must pay the starting rate of 10% in income tax. If they earn between £2,021 and £31,400 they pay the basic rate of 22%.
In order to check your employees are being paid the correct amount, you need to calculate gross pay and subtract any pay that doesn’t count toward the NMW. This figure is divided by the number of hours in an employee’s pay reference period – the time between how often an employee is paid. Under the NMW
legislation, a pay reference period can be no longer than one calendar month.
A worker who is entitled to the NMW must be paid that amount, and it is a criminal offence for a worker to suffer any detriment because they are entitled to the minimum wage. This means that if, for example, they are not given a promotion or training, they are demoted or their pay is cut, they will be able to bring a claim of discrimination or unfair dismissal.
An employee has the right to claim the difference between the payments they received and what they should have received under the legislation.
The Inland Revenue checks on whether companies are paying the NMW. It has 16 enforcement teams who can issue enforcement notices to pay the NMW. Refusal to give information to, or intentionally obstructing, an enforcement officer is a criminal offence.
A confidential hotline allows complaints about employers not paying the minimum wage to be made but employers are also selected randomly by the Inland Revenue to check they are complying with the law.
Minimum wage arrears can be backdated six years and former employees are not excluded.
Employers also need to keep genuine records of who is getting the minimum wage in order to comply with the legislation. These must include a copy of the agreement for the worker to receive accredited training and a copy of how the NMW was calculated, depending on the type of work undertaken. Such records should be kept for three years. If an employer fails to keep a record they may be fined £5,000.
Workers have the legal right to see their NMW records if they believe they are being paid less than the statutory minimum. They may see the records themselves or be accompanied by a person they think fit to do so. The employee must give notice, with their intention to be accompanied, if applicable, to their employer before accessing their records.
If you receive such a notice, you must give reasonable notice of the place and time where the employee can view their records. This must be within 14 days after receiving the employee’s notice, or at a later time as agreed by both parties.
While it is not requested in the NMW legislation, employers may wish to provide a worker with an NMW
statement outlining the rates of pay and conditions.
One retailer paid the price for misunderstanding the legislation. They paid a petrol station worker a basic hourly rate less than the NMW for their shifts in the week and a higher rate at weekends. The employer believed that as long as the worker’s total pay
averaged out to the NMW it was compliant. But where the same work is being done, the added overtime payment does not count for the NMW, and the calculation assumes the lower rate for the weekend shifts. The employer was ordered to pay £2,753 wage arrears.
Further information on the NMW is available at:
Tailored Interactive Guidance on Employment Rights (TIGER) www.tiger.gov.uk
Low Pay Commission www.lowpay.gov.uk
Department of Trade and Industry www.dti.gov.uk/er/nmw/
Inland Revenue 'www.inlandrevenue.gov.uk/nmw/
NMW Hotline 0845 6000 678