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Minimum Wage and Statutory Pay Obligations
1. The Minimum Wage
1.1 Almost all workers are entitled to the National Minimum Wage (NMW).
- The NMW for those aged 21 and over is £6.31.
- There is a lower minimum wage of £5.03 for those aged 18 to 20.
- Workers aged 16 and 17 (except apprentices) are entitled to a minimum of £3.72 per hour.
- Apprentices under the age of 19, or older than this but in the first year of the apprenticeship period, are entitled to a minimum of £2.68 per hour.
- Freelance and temporary workers are entitled to the NMW.
1.2 The average pay must be at or above the minimum wage for each ‘pay reference period’.
- The reference period is the worker’s actual pay period, up to a maximum of a month.
- Premium payments (eg overtime at time-and-a-half) cannot be included when calculating whether the worker has been paid the minimum wage. Only the standard hourly rate portion of the overtime payment can be counted.
1.3 Hours worked will depend on the type of work the worker does.
- For waged workers, the hours are usually clearly stated.
- For salaried workers, hours are usually a set number of basic hours per year.
1.4 The position of workers who sleep on the premises is under review. The Department for Business, Innovation & Skills advises that workers need not be paid the minimum wage in respect of the period when they are not actually working, provided that:
- The employment contract clearly sets out the period when the worker is permitted to sleep, and the employer provides suitable sleeping facilities.
1.5 The value of most perks cannot be included when calculating whether the employee is being paid the minimum wage.
- The value of accommodation provided free can be included, but only up to a value of £34.37 a week.
- The value of perks which can be freely exchanged for money, goods or services is included (eg incentives and bonuses).
- Tips do not count towards the minimum wage, unless collected by the employer and paid through the normal pay system.
1.6 There is no opt out from the NMW.
- Workers cannot agree to be paid less.
- Workers must be paid the minimum, no matter how poor their performance is.
- Dismissing a worker to avoid paying the minimum wage is automatically unfair.
- Directors of a start-up must be able to show that they pay themselves at least £6.31 an hour.
1.7 You need to keep adequate pay records to prove you are paying the minimum wage.If workers suspect they are underpaid, they can request, inspect and copy any records that will establish whether this is true or not.
- You must respond to a request for relevant information within 14 days.
- Records don’t have to be kept in a specific format. If most of your employees are paid well above the minimum wage, you may not need to keep any additional records beyond those you already keep for PAYE.
- In case of dispute, you will have to prove that you have paid the minimum wage.
1.8 The minimum wage is enforced by HM Revenue & Customs (HMRC).
- It has the power to demand records, enter premises and interview employees.
- It may detect breaches of the minimum wage requirements on your PAYE returns.
- Failing to keep adequate records, keeping false records, and obstructing an enforcement officer are all separate criminal offences. You could be liable for fines of up to £5,000 for any of these offences.
- If it is discovered that an employer is not paying the minimum wage, they will have to pay arrears within 14 days and a penalty of a quarter the amount owed in arrears. If the employer misses the 14-day deadline, the penalty will double to half the amount owed. If the employer still fails to pay, they risk prosecution and an additional fine.