National Minimum Wage

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What is the National Minimum Wage

It is a piece of legislation, introduced in April 1999, to ensure that certain age groups of people earn at least a specified minimum amount of money per hour. The Low Pay Commission makes recommendations to the government which, if accepted, and they usually are, are passed into law and enforced by the Inland Revenue.

Who are exempt

What ever the size of your business or no matter how few employees you may have there are no businesses that are exempt from paying at least the NMW.

Are there any employees that need not be paid the NMW

• Under 16 year olds
• Apprentices over 15 years and under 19 years old
• Apprentices over 17 years and under 26 years old (first 12 months of employment)
• Members of the Armed Forces
• Share fisherman
• Participating members of a family business who live at home
• Workers who live and work as part of the family who pays them. (Limited company rules differ)
• Prisoners whilst working during their sentence
• Au pairs and nannies
• People who are thought of as employees (but in law are not)
• Volunteers
• Self employed workers (as defined by the Inland Revenue)

What are the pay rates

From 1st day of	Hourly pay rates or equivalent				per week
Age	16 - 17	18 - 21	22 and older	22+  training	Live in allowance
Oct 2009	Not yet announced
Oct 2008	£3.53	£4.77	£5.73	£4.77	£31.22
Oct 2007	£3.40	£4.60	£5.52	£4.60	£30.10
Oct 2006	£3.30	£4.45	£5.35	£4.45	£29.05
Oct 2005	£3.00	£4.25	£5.05	£4.25	£27.30
Oct 2004	£3.00	£4.10	£4.85	£4.10	£26.25
Oct 2003	N/A	£3.80	£4.50	£3.80	£24.40
Oct 2002	N/A	£3.60	£4.20	£3.60	£22.75
Oct 2001	N/A	£3.50	£4.10	£3.50
Oct 2000	N/A	£3.20	£3.70	£3.20
Jun 2000	N/A	£3.20	£3.60	---
Apr 1999	N/A	£3.00	£3.60	---

Not all courses are 'accredited', generally they are held at institutions that receive government funding or courses that are government sponsored. An employer will be made aware of the status of a course before enrolment. The pay rate only applies to the first six months, thereafter the normal 22+ rate applies. Apprentices aged 16 -17 are exempted from the 'young workers' rate.

Compulsory School Age

A 16 year old is only classed as a young worker once they have exceeded the compulsory school age. Just to make things more complicated, as usual, each area of Britain defines this differently.

England and Wales: after the last Friday of June of the school year in which their 16th birthday occurs.
Northern Ireland: after the 30th June of the school year in which their 16th birthday occurs.
Scotland: 16th birthday falls between 1st March and 30th September - after 30th May of that year, otherwise after the start of the Christmas holidays in that school year.

Piece rate workers

From 1st October 2004 employers have had to pay employees on piece rate work the same as the national minimum wage. From April 2005 this rate was increased to 120% of the national minimum wage. In reality this means that most piece workers will instead be paid the national minimum wage hourly wage.

What entitlements do workers have

All employers must keep records (for up to seven years) to prove compliance with the legislation. All workers are allowed to see the records relating to their own employment. If access is denied, or the records do not exist, they can complain to an employment tribunal, likewise, if they have not been paid the NMW they can complain either to the Inland Revenue or a tribunal.

What happens when a complaint is made

A worst case scenario is that the employer could be fined up to £5000 for committing a criminal offence, an enforcement notice with minimum fines of £200.00 per worker and a civil fine of twice the amount of the national minimum wage per day per worker during the period of non-compliance. Enforcement notices can also be issued for breaches made on employees that have left and prior to the enactment date of the amended regulations that allow this.

Enforcement is carried out by the Inland Revenue. On a visit by Revenue officers, which may or may not be by appointment, you will be expected to show records that prove your compliance. As with everything, failure on one count leads to suspicions on others, and with today's Inland Revenue covering a multitude departments it is very easy for that information to be distributed.

Correcting errors and the calculation

If, by mistake, you discover that NMW has not been paid then, after discussion and agreement with your workers, the amount of underpayment can be made and the payment rate adjusted to comply for future payments. Even though the rate now complies you have still technically committed an offence under the NMW legislation. Ignorance of the law or miscalculation of the rate is no excuse.

Things that may trip you up when calculating NMW

Not all payments may be used for the calculation of NMW. In addition to basic pay, bonuses, commissions, performance incentives etc are allowed but things like overtime, benefits, expenses and special shift allowances are not. Also taken into account is the charge for accommodation when it is part of the job.

Obviously, the closer the basic pay rates are to the NMW the greater the need for close monitoring to ensure compliance. Generally, the higher the basic pay rates the less chance there is of contravention. Special attention needs to paid to salaries that are made up of irregular payments, i.e. varying or high but infrequent commissions, piece work payments or 'rate for job' payments.

What counts a hours

If payment is not dependant on the number of hours worked or a salary agreement, for example, sales commission, piece work or payment per task, it is good practice that an agreement be made that states a 'fair estimate' or the 'average' hours worked to attain a certain level of pay or complete a number of tasks etc.

Calculation is then a simple matter of dividing the amount of qualifying pay by the number of qualifying hours. If the result is greater or equal to the category the employee falls in then compliance is achieved.

Record keeping

A complete set of records must always be kept no matter the level of pay, however, it will always be a good idea to keep a special set of records or documents where there may be some difficulty or it would not be straight forward proving compliance. These may include statements or agreements that explain exactly how the NMW is met under set conditions or circumstances, i.e. expected hours worked, number of items per hour, varying piece rates, commission rates etc.