Since the Government introduced the National Minimum Wage Act in 1998 most workers have been entitled to a wage equivalent to, or higher than, the nationally set minimum. Employers face large financial penalties if they don't comply. Certain changes to the national minimum wage regulations, including the minimum wage rates, came into force on 1 October 2004.
What are the rates?
Last increased in 1 October 2004, the current national minimum wage is £4.85 an hour for workers aged 22 and over, set to increase to £5.05 on 1 October 2005. For those aged between 18 and 21 inclusive the rate is currently £4.10 an hour (£4.25 from October 2005). A new hourly minimum wage of £3 for 16- and 17-year-olds was set for the first time in October 2004 (no change in 2005 announced yet).
An "accredited training rate" of £4.10 an hour (£4.25 from October 2005) applies to workers aged 22 and over who start work with a new employer but who are on an accredited training programme for the first six months. Once the six months are up, they have to be paid the adult rate.
Who is covered by the regulations?
Most workers aged 16 or over who work under a contract of employment or other form of worker's contract are entitled to the minimum wage, with a few exceptions. This is regardless of hours worked or their status - full-time or part-time, casual or permanent.
Individuals who are generally self-employed do not qualify.
Are there any exemptions?
Certain categories of workers are not entitled to the national minimum wage. They include people who live and work with a family, or who work for friends and neighbours under informal agreements.
Apprentices under 26 are exempt during the first year of their apprenticeship, or until they are 19 if they started their apprenticeship before they were aged 18.
Certain back-to-work initiatives offered since 1 October 2004 do not qualify the worker for the national minimum wage in relation to work done for the employer under the scheme. In England the scheme is known as "Entry to Employment", in Scotland "Get Ready for Work", in Northern Ireland "Access", and in Wales "Skillbuild".
What rate applies to trainees, and what counts as training?
Many Government-funded trainees do not qualify for the minimum wage, although those with contracts of employment do.
Those receiving accredited training are entitled to the accredited training rate during the first six months of their new job.
Accredited training includes:
- NVQs, GNVQs or other vocational qualifications, as published by the Department for Education and Skills.
- In-house training certified as including at least 50% of the requirements for an NVQ.
- GCSEs, A levels and basic mathematics, English or Access to Higher Education courses for workers aged 22 or over who are taking part in the New Deal programme.
What counts towards the national minimum wage?
The starting point is gross pay. Payments made as part of an incentive or performance-related pay scheme, a bonus scheme, and tips or service charges passed on to the worker through the payroll can also be included.
What doesn't count?
- Overtime and shift premiums.
- Any special allowances made to the employee: for example, for working in dangerous conditions or working unsocial hours.
- Expenses payments.
- Allowances for clothing, travel, etc.
- Money deducted by the employer to cover the cost of items that are necessary for the worker's job (for example, a deduction for the cost of a uniform - the employer must pay the worker the minimum wage in addition to the cost of the uniform).
- Benefits in kind: for example, meals, luncheon vouchers, fuel, medical insurance.
- Advances on wages.
- Loans to employees.
- Pension payments.
- Redundancy payments.
- Lump sums payable on retirement.
- Tips paid directly to the worker by the customer.
What if I provide accommodation?
In these circumstances you may deduct an amount from the worker's pay or charge for the accommodation. The current rate is £26.25 a week. Where accommodation is provided for less than a week, the amount can be altered in line with the minimum wage rate.
How do I work out if I'm paying someone the minimum wage?
- Check that the person qualifies.
- Check how frequently the worker is paid (the pay reference period).
- Calculate the gross pay and identify what payments count towards the minimum wage, including bonuses, etc.
- Subtract any payments that do not count towards the minimum wage, for example, overtime premiums.
- Add back an amount for accommodation, if provided, subject to the maximum of £26.25 a week.
The result is the amount of qualifying pay that the worker has received. Then:
- Identify the number of hours for which the minimum wage must be paid.
- Divide the amount of qualifying pay received by the number of hours to check that the amount is equivalent to, or higher than, the minimum wage.
Do I have to inform all employees about the minimum wage?
The Department of Trade & Industry recommends that employers inform their staff about the basic facts of the minimum wage to avoid the likelihood of confusion or of complaints being made for the wrong reasons. In addition, employers are encouraged to display basic information about the minimum wage in the form of a poster setting out the rates that are payable.
Do I have to keep detailed records?
Employers must keep sufficient records to establish that they are paying their workers at least the national minimum. In the event of a dispute, this will help prove that the employer has paid the required amount.
Records should detail the worker's gross pay, the pay reference period, records of tax or national insurance, any relevant overtime or shift premiums, any benefits received, tips or service charges paid through the payroll, absences, any regulatory notices provided to the worker, and any training undertaken.
An enforcement officer may ask to see the records or require them to be produced after a reasonable notice period. It is a criminal offence for an employer to fail to keep records or to keep false records.
What are the sanctions for breaking the regulations?
A refusal to allow a worker access to records can result in a tribunal award of 80 times the minimum wage.
Unpaid national minimum wage may be recovered through an employment tribunal or civil court.
Enforcement officers have the power to issue enforcement notices to require employers to pay the minimum wage. If these are ignored, the officer can seek to impose a penalty of twice the hourly amount of the national minimum wage per day per worker in respect of whom the employer is in breach of the regulations.
Six criminal offences can result in prosecution:
- Refusal or wilful neglect to pay the minimum wage.
- Failing to keep records.
- Keeping false records.
- Producing false records or information as evidence.
- Intentionally obstructing an enforcement officer.
- Refusing or failing to give information to an enforcement officer.
The fine for each offence is up to £5,000.
How is it enforced?
The Inland Revenue enforces the national minimum wage, and a helpline takes complaints on 0845 6000 678. Local Inland Revenue inspectors follow up complaints with visits as appropriate.