News & Insights

The National Minimum Wage (NMW) is the prescribed hourly rate of pay which employers must legally pay to most of their workers.

From April 2020 NMW is increasing with 25 and overs to receive £8.72 per hour. If you believe your employees are paid above the NMW or are safe with a set an annual salary, certain circumstances may still put you at risk.

Who is entitled to the NMW?

Initially this seems a simple answer – all workers and employees.

However, “worker” has a specific legal meaning which is determined by the circumstances of the employment relationship. This requires specialist advice to be able to assess an individual properly.

How do I calculate the NMW in relation to specific workers or employees?

This too can be complicated. It includes considering when the individual is paid, the amount paid before tax and working time. This is often where problems are noticed.

Types of work

‘Work’ falls into various categories which each have different methods of calculation for NMW purposes:

• Salaried hours work
• Time work
• Output work – pay is linked to output production
• Unmeasured work

Some individuals may carry out a mixture of work types, this must be reflected in their pay, and NMW must be paid in relation to hours worked under each type. This is why specialist advice is required.

Considerations and risks

There are certain situations which may catch employers out, including when a salaried employee with set hours conducts further work in excess of such hours commonly called overtime. This overtime may need to be included in any NMW calculation and can reduce the employees’ hourly wage if the pay has remained the same however the hours within the payment reference period have increased.

In addition each pay reference period may span a different number of days and hours. It is therefore important to consider for each reference period whether the employee actually receives the NMW.

Breaching the NMW requirement can result in HMRC issuing civil penalties, “naming and shaming” employers, seeking recovery of underpayments and possible criminal prosecution. HMRC’s enforcement options are separate from those of any underpaid employees who may bring claims for unlawful deduction of wages, which if spans multiple employees can prove costly.

Please note that the above provides and overview of NMW, additional considerations should be given to: time sheet workers, bonus provisions, commission payments, accommodation provisions, salary sacrifice schemes, overtime and fair pay per piece regulations for output work.

If you have any questions about whether your employees are paid the NMW, or are unsure how the changes in NMW might affect you, we are happy to help and have employment law specialists on hand.

To get in contact please contact 01202 755980 or email r.watson@laceyssolicitors.co.uk