As you hopefully know, all workers are entitled to be paid at a rate which is not less than the national minimum wage.
How much is the national minimum wage?
The rate of the national minimum wage is set by the Government. It generally changes with effect from 1 October each year. The current and future rates (per hour) are summarised below:
|
Current rate |
New rate from 1 October 2015 |
|
| For apprentices under 19 or who are in the first year of their apprenticeship |
£2.73 |
£3.30 |
| For 16 and 17 year olds |
£3.79 |
£3.87 |
| For 18 to 21 year olds |
£5.13 |
£5.30 |
| For those aged 22 and over |
£6.50 |
£6.70 |
How do I calculate the national minimum wage?
An individual's hourly rate of pay is determined by:
a) the total remuneration they receive in a "relevant pay reference period" – this is usually one month (or a shorter period if the worker is paid by reference to such shorter period, e.g. a week if they are paid weekly); and
b) the total hours that they work during that reference period.
Remuneration includes both the individual's basic salary as well as incentive payments such as commission and bonuses.
Can I include tips as being part of the individual's remuneration?
No, tips, gratuities and service charges should not form part of your calculations for the purposes of ensuring you meet your national minimum wage obligations. (This used to be allowed historically but the rules changed in 2009.)
Can the cost of living-in be taken into account?
Yes, if the employer provides free accommodation, the employer can apply an "accommodation allowance". However, this is limited to a maximum of £5.08 per day (rising to £5.35 from 1 October 2015).
If the worker pays rent to the employer for the accommodation (rather than it being free), the accommodation allowance can still be applied but any amounts paid in excess of this limit must usually be deducted from the minimum wage calculation. This will therefore reduce the overall rate of pay that they receive.
Can the cost of other benefits be included in the calculation?
No, other types of benefits in kind (for example, free meals) do not count towards the national minimum wage calculations. The only benefit in kind that can be taken into account is accommodation (see above).
Does on-call time count towards the hours worked?
Generally speaking, the time where an individual is not working but is required to remain available at or near their workplace so that they can carry out work if it is required will count as working time. However, there are exceptions to this, for example, where the individual is permitted to sleep and suitable sleeping facilities are provided.
What happens if I do not pay the national minimum wage?
If workers are paid below the minimum wage, they are able to bring a claim against their employer to recover the arrears.
HM Revenue & Customs (HMRC) may also take enforcement action, which can even lead to criminal prosecution in rare cases. However, more commonly, a notice of underpayment is issued by HMRC and the employer is subsequently named and shamed in a Department of Business, Innovation and Skills (BIS) list. Many in the hospitality and leisure sector have already found themselves on that list – don't let yourself become one of them!
What is the living wage?
The Government's most recent Budget announced a new "national living wage" which is to be introduced for workers aged 25 and over from April 2016. A 50p premium will be applied to the national minimum wage rate. This effectively makes a minimum wage of £7.20 for older workers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.