From 1st April 2024, the National Minimum Wage and National Living Wages increased. These new rates are:
- £11.44 per hour for those aged 21 and over;
- £8.60 per hour for those aged 18 – 20;
- £6.40 per hour for those aged 16 – 17, and as the apprentice rate.
It can be easy to unknowingly fall foul of national minimum wage requirements if employers aren’t on top of areas that can catch them out. Therefore, in light of the increase this month, it may be good practice for an employer to audit their wages and ensure that they are compliant with NMW requirements. Any shortfall identified should be paid accordingly.
Some areas that can be common pitfalls for employers are:
1. Not reviewing annual salaries to ensure ongoing compliance.
The minimum wage increases apply to all workers, regardless of whether they are paid an hourly rate or annual salary. Employers will need to ensure that they review any salaries on the lower end of the pay scale to ensure that the salary received is still in line with minimum wage. As an example, for a 23-year-old employee working a 40 hour week, a yearly salary of £22,000 or £23,000 will fall short of minimum wage as of this month. Given the large increases and extension of the national living wage to those aged 21 and over, employers would be sensible to review salaries accordingly.
2. Unpaid overtime.
Any entitlement to pay for additional hours worked will be determined by the contract of employment. For those on an annual salary, it can be common that all additional hours are unpaid, as the salary usually reflects the need to work occasional overtime determined by business need. These hours will, however, count for the purposes of determining minimum wage per hour, and may catch employers out where the salary received by employees is close to minimum wage.
3. Not keeping record of hours and wages paid.
The National Minimum Wage Regulations require employers to keep certain records of hours worked by workers and payments received to establish that national minimum wage has been received. These records must be made available for inspection by HMRC or workers.
4. Not calculating minimum wage over the correct reference period.
When calculating wage for compliance purposes, the remuneration needs to be divided by hours worked within the relevant pay reference period. Employers can fall foul of this calculation by applying an incorrect pay reference period, such as applying the pay over a year. The correct pay reference period will be either one month or, if the pay period is less than one month, that period.
5. Making deductions from wages or payments made in connection with employment by the worker to third parties.
Some deductions from wages will impact minimum wage calculations by reducing the remuneration received for the purpose of calculating minimum wage. Deductions made in connection with employment (such as purchase of tools or uniform, deductions for compulsory training), payments made by the worker to the third party in connection with expenditure under employment (such as requirement to purchase specific items for a uniform dress code), or deductions from wages for the employer’s use of benefit will all reduce the remuneration received for the purposes of calculating national minimum wage.
6.Wrongly counting payments towards minimum wage calculations.
Some payments to workers cannot be counted for national minimum wage purposes, and including these may well leave an employer incorrectly believing that national minimum wage has been complied with. Common examples of this are benefits in kind, loans paid to the employee, advances of wages paid, redundancy payments or premiums paid for overtime or shift work.
7.Not identifying the type of work correctly for minimum wage purposes.
There are different rules for calculating the number of hours that must be paid for NMW purposes, all depending on the type of work being carried out. The types of work defined in the National Minimum Wage Regulations 2015 are:
- Salaried work – this effectively is a worker who is paid under their contract for an ascertainable basic number of hours per year; is entitled to an annual salary for those hours; is not entitled to any other payment for those hours; and is paid either in equal instalments or varying monthly instalments resulting in the worker being entitled to be paid in equal amounts each quarter.
- Time work – this will apply to a worker who is either paid solely by reference to the length of time they work, paid according to their level of output in a period of time or is paid according to output work but is paid per hour because they fail to reach the set output per hour.
- Output work – generally, this is paid according to someone’s productivity, whereby they are paid for a task complete.
- Unmeasured work – this is any other work done which does not fall into one of the above categories.
Each type of work carries its own rules on calculating the hourly rate. The different calculations under each type will produce different results when applied to the same set of facts, so it’s crucial the work is correctly identified from the outset.
8. Not knowing what ‘working time’ is for NMW purposes.
There are special rules which apply to determine whether certain types of time qualify as working time for NMW purposes. For example, travel for the purposes of salaried work, time work and output work where the worker would otherwise be working is treated as working time for NMW, unless the travelling is between their home and normal place of work or their home and an assignment. Training which has been approved by the employer will, generally, count as working time.
There are many ‘problem’ areas in relation to working time for NMW purposes, such as in relation to on call time or sleep-in workers. Employers should ensure that they seek advice on these matters to ensure they are aware of current rules and decisions.
Minimum wage calculations can be a complicated area of employment, and employers should ensure they take time to review pay arrangements and ensure that minimum wage requirements are being complied with. If you would like to discuss any specific issues around minimum wage or general concerns you may have, please speak to your Howarths Employment Law advisor on 01274 864 999.
