An employer’s guide to the National Minimum Wage

Written by Kevin Murphy
9 August, 2021

In this article, we will look at everything an employer needs to know on national minimum wage, such as: the penalties to pay if not employees are not paid correctly; the difference between national living wage and dealing with complaints about wages.

The National Minimum Wage refers to the minimum pay per hour almost all workers are entitled to. The wage an employee is entitled to is determined by their age and if they’re an apprentice. The current rates are as follows:

From April 2021:

Apprentice: £4.30(if under 19 or over 19 but in the first year of their apprenticeship)

  • Under 18: £4.62
  • 18-20: £6.56
  • 21-22: £8.36
  • 23 and over: £8.91

What happens if an employer doesn’t pay the National Minimum Wage?

If an employer fails to pay their employee the correct wage they will be in breach of minimum wage regulations.

Firstly, an employee can issue proceedings in the employment tribunal for the monies due.  It is a public arena and anyone can attend hearings, as well as judgments being available publicly online.

Secondly, If HMRC (HM Revenue & Customs) find that an employer has not paid at least the minimum wage, they can issue a notice of any monies due plus issue a penalty. The maximum fine for non-payment is £20,000 per worker. Employers can be publicly banned from being a company director for up to 15 years.

Following on from that, a list is publicly released each year to ‘name and shame’ employers who have underpaid workers, this list hits the press and is public information to see the employer/company name, trading name, postcode, sector as well as how much money is due. This year (2021) over 190 named companies failed to pay £2.1 million to over 34,000 workers.

If you have any queries on the national minimum wage for your employees, contact us to make sure you don’t end up on the ‘named and shamed’ list or in a tribunal.

What is the difference between the national minimum wage and living wage and how do I calculate it?

The national minimum wage is the minimum wage a worker can be paid, whereas the national living wage refers to workers over the age of 23 and is higher than the minimum wage. In order to calculate the national minimum wage you need to:

  • Firstly,  take the workers gross pay, which could include bonuses or commissions, regular overtime, and allowances for performance  in a pay reference period (which is the frequency with which they are paid, for example monthly: 1 July – 31 July)
  • You need to deduct any amounts in that period that do not count towards the NMW. This includes extra or premium payments for overtime or shift working; allowances not applicable to performance, and benefits in kind such as accommodation benefits above £8.36 per day.
  • Finally, divide this by the total number of hours worked in that pay reference period. Once this total has been identified, this total can be reflected against the government’s current national minimum wage rates.Please note that national minimum wage increases are announced on 1 April every year.

Can I pay commission only even if it falls below the National Minimum Wage (such as in hair or beauty salons)?

You can – so long as you top up to the national minimum wage if the commission payments only fall below it.

If you only pay commission over a pay reference period and this falls below the NMW, you will be breaching restrictions.

Can I make deductions from staff wages if they are on the National Minimum Wage?

You can but you need to ensure that deductions for certain reasons do not tip your calculations below the NMW.

The following deductions are ignored for the purposes of calculating whether NMW has been paid:

  • deductions for the worker’s conduct which they are contractually liable for;
  • repayment of a loan or recovery of an accidental overpayment;
  • the purchase of shares, options etc;
  • the purchase of goods or services from the employer which they have chosen to buy.

The following deductions are included for the purposes of calculating whether the NMW has been paid:

  • anything required to be purchased for the employer’s own use (including for example scissors an employed hairdresser has to buy themselves);
  • deductions based on the employee’s expenditure in connection with employment

What if an employee complains that they are not being paid at the National Minimum Wage rate?

Should an employee complain that they are not being paid at the correct rate, firstly it is important to calculate, using the method above, how much you are paying them, and if you are or are not paying them at the NMW rate.

As the employment tribunal is focused on rewarding losses for claims, if you find that you are not paying the correct rate to your employee, a prudent solution is to simply offer the employee the loss they have incurred as if they have always been paid at the NMW rate.

One way to make this easier for businesses is to spread this payment over monthly instalments – this can be attractive to the employee too, as they will have to pay less tax on it which they would otherwise only be able to claim back at a later date.

Care Sector National Minimum Wage frequently asked questions:

Where my employee travels from place to place (such as domiciliary care) is travel time included in National Minimum Wage calculations?

Only if their contract states that those hours are paid hours – if those are identified in the contract as hours to be worked, then that time is counted for NMW calculations.

Where my employees have to complete sleep-ins (care sector) do I have to pay National Minimum Wage for time spent asleep?

The supreme court recently found that only hours where workers were “awake for the purpose of working” counted for the NMW. Time sleeping does not count for NMW calculations, therefore.

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