National Minimum Wage

The National Minimum Wage (NMW) was introduced on 1 April 1999. The National Minimum Wage is worked out at an hourly rate, but it applies to all eligible workers even if they’re not paid by the hour. HMRC are the agency that ensures enforcement of the NMW. Highlighted below are the main principles of the national minimum wage/ national living wage rates (updated April 2017).

National Minimum Wage/ National Minimum Living Wage Rates

  1. An apprentice (aged under 19 or over 19 if they are in their first year of their apprentice) must be paid a rate of £3.50 per hour
  2. The current rate for the NMW is £7.05 per hour for workers aged 21 to 24.
  3. The current rate for employees between 18 and 20 years old is £5.60 per hour.
  4. Workers under the age of 18 years should be paid a minimum rate of £4.05 per hour
  5. 25 years and over must be paid a National Living Wage rate which is £7.50 per hour.

 

Workers paid per task they perform or piece of work they do (known as piece work) are classed as doing ‘output work’. They must be paid either at least the minimum wage for every hour worked or on the basis of a ‘fair rate’ for each task or piece of work they do. Usually derived from the time it takes a worker, working at average speed to produce the work in question.

There are NO exemptions from paying the NMW on the grounds of the size of the business…

Please note that HMRC have the power to serve an enforcement notice requiring the payment of at least the NMW, including arrears, to all family members working for a limited company.

What is taken into account in deciding whether the NMW has been paid?
The amounts to be compared with the NMW include basic pay, incentives, bonuses and performance related pay and also the value of any accommodation provided with the job. Overtime, shift premiums and regional allowances are not to be taken into account and benefits other than accommodation are also excluded.

What records are needed to demonstrate compliance?
There is no precise requirement but the records must be able to show that the rules have been complied with, if either the HMRC or an Employment Tribunal requests this to be demonstrated. Where levels of pay are significantly above the level of the NMW, special records are not likely to be necessary.

It is recommended that the relevant records are kept for at least seven years.

Normally there is not likely to be any serious difficulty in demonstrating compliance where employees are paid at hourly, weekly, monthly or annual rates but there may be difficulties where workers are paid on piece-rates and where, for example, they work as home-workers. Where piece rates are used, employers must give each worker a written notice containing specified information before the start of the relevant pay period. This includes confirmation of the ‘mean’ hourly output and pay rates for doing their job.

What rights do workers have?
Workers are allowed to see their own pay records and can complain to an Employment Tribunal, if not able to do so they can also complain to HMRC or to a Tribunal if they have not been paid the NMW. Workers can call the confidential Acas helpline or look at the Acas Helpline Online to help them solve a payment dispute.

What are the penalties for non-compliance?
Enforcement notices can be issued if underpayments are discovered and there could be a penalty equivalent to twice the hourly amount of the NMW for each worker that has been underpaid multiplied by the number of days that enforcement notices are not complied with.

There could also be a maximum fine of £5,000 for having committed a criminal offence.

How We Can Help
We will be more than happy to provide you with assistance or any additional information required. We also offer a full payroll service – please contact us if you would like more information.

Disclaimer
KM Business Services (yorkshire) Ltd (KMBS) offer a range of accounting services designed to meet the needs of your business. To find out how KMBS can help you and your business achieve more Contact us
© KM Business Services (yorkshire) Ltd 2017. All rights reserved. The document provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Never rely exclusively on our standard answers and general content and always do your own specific research. Always have the entire facts and all documents to hand before making any decision.

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