National Minimum Wage: Are you getting it right?
On April 1st, increases to both the National Living Wage (NLW) and National Minimum Wage (NMW) came into force, boosting the wages over two million employees across the UK. In some cases, the implementation of the annual changes to the NLW and NMW will be as simple as increasing the pay for those workers affected.
However, the minimum wage amounts do attract some complexity,meaning employers can unwittingly find themselves on the wrong side of the law when it comes to paying their staff.
Here’s what you need to think about to ensure you are paying your employees correctly:
Paying the right amount from the implementation date
It sounds obvious, but paying the right amount to the right people isn’t always straightforward. There are several different rates which apply to employees of different ages, which can complicate things.
This year, the National Living Wage (NLW) has risen from £8.72 per hour to £8.91 per hour and now applies to workers aged 23 years and over. In terms of the National Minimum Wage (NMW), workers aged 21 to 22 will receive a new hourly rate of £8.36 up from £8.20, and those aged 18-20 have received an increased from £6.45 to £6.56. Younger workers aged 16 and 17 have received an increase from £4.55 to £4.62, and the apprentice rate is now £4.30 per hour, up from £4.15.
The 2021 NMW wage rate increase was effective from April 1, and this is the date from which your employees’ pay should be adjusted. You must ensure any payrolls are updated and backdated accordingly to take this into account. Simply paying the increased wage rate from the middle or end of the implementation month will not be acceptable.
Missing employees’ birthdays
From the age of 16, employees will work their way through the minimum wage rates until they reach the age of 23 (previously 25). Turning, 18, 21 or 23 years old means a pay rise from the date of their birthday, so make sure you have a record keeping system in place that flags up any birthdays that will mean a change to an employee’s entitlement to minimum pay.
Paying an apprentice rate to individuals who are not legally classed as apprentices
The law relating to the employment of apprentices is not particularly straightforward, but there are very specific contractual requirements that must be met before an individual can be legally classed as an apprentice for the purposes of the minimum wage legislation.
To be lawfully classed as an apprentice, an individual must be employed under a properly formed apprenticeship agreement which must include an element of structured training. The training provider should be referenced within the apprenticeship agreement and there will usually be associated paperwork in place from the training provider.
Individuals who are not contractually engaged in this way and who perhaps are only apprentices ‘in title’, should not be treated as apprentices for the purposes of the minimum wage legislation and should be paid the National Minimum Wage or National Living Wage in accordance with the applicable rate for their age.
Making deductions from wages for items or expenses that are connected with the employee’s work
If you require employees to have or use certain items as part of their normal day to day duties,you should usually fund the costs of these. You must not deduct these costs from your employee’s gross pay, thereby reducing the minimum wage rate, and those that do will not have any defence to their actions.
Bolstering minimum wage with elements of pay that don’t actually count towards it
Any argument which suggests that an employee is in receipt of the minimum wage requirement on the basis that, cumulatively, their wage and payments such as tips or shift allowances allow the minimum wage to be met, will fail.
Any monies that an employee stands to earn through their work, in addition to the basic pay which can be expected by them through the normal discharge of their duties, must not be considered separate to the calculation of the minimum wage payment. HMRC are ever increasing their presence in the hospitality sector, where tips are commonplace, to ensure that employers are acting appropriately when it comes to the effect of tips on the employee’s entitlement to minimum pay.
Not calculating furlough pay correctly
While your employees must be paid their new minimum hourly rates from 1 April for hours worked or for any hours they have spent doing work-related training, the furlough rate is currently 80% of wages for minimum wage workers, even where this means that the hourly rate will fall below the minimum wage. If the furloughed employee spends time doing work-related training while on furlough, as their employer you are required to top up the furlough pay to meet the minimum wage requirements for these hours.
When claiming furlough for an employee who is on minimum wage or national living wage, it is important to base their furlough pay calculation on the correct rate. The calculation must be based on the rate they received in the reference period associated with when they were first furloughed, and not on the new wage rates introduced in April 2021. This will technically mean than some furloughed employees will ‘miss out’ on the minimum wage increases while they remain on furlough leave, but rest assured, this is the correct approach for an employer to take. When these employees return to the workforce post-furlough, they will have to be paid at the new national minimum wage level as required.
Author: Charlotte Geesin LL.B (Hons) LLM, Head of Employment Law & Business Immigration at Howarths