Minimum Wage and Statutory Pay Obligations

1. The Minimum Wage

1.1 Almost all workers aged 18 and over are entitled to the National Minimum Wage (NMW).

• The NMW for those aged 22 and over is £5.52 (£5.73 from 1 October 2008).
• There is a lower minimum wage of £4.60 for those aged 18 to 21 (£4.77 from 1 October 2008).
• Freelance and temporary workers are entitled to the minimum wage.
• Workers aged 16 and 17 (except apprentices) are entitled to a minimum of £3.40 per hour (£3.53 from 1 October 2008).

1.2 Workers' 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. Current advice from the Department for Business, Enterprise and Regulatory Reform (formerly the DTI) is 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 £30.10 a week (£31.22 from 1 October 2008).
• 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 national minimum wage.

• 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.
• Even the directors of the smallest start-up must be able to show that they pay themselves at least £5.52 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.

• 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 national minimum wage, they will have to pay arrears within seven days. If the employer misses the seven day deadline, they will have to pay a minimum fine of £231.84 per worker. If the employer still fails to pay, they risk prosecution and an additional £5,000 fine.