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About Thompsons | Publications | Information Leaflets and Guides | National Minimum Wage
The national minimum wage (NMW) came into force on 1 April 1999. The National Minimum Wage Regulations 1999 and the National Minimum Wage Act 1998 provide the legislative framework for the implementation and enforcement of the NMW.
The NMW is of universal application - geographically, across different employment sectors, across employers of different sizes and for all ages of workers over 26. For all current rates and details, please see www.dti.gov.uk/er/nmw.
The NMW applies to "workers" aged 22 and over. Coverage extends beyond "employees" working under a contract of employment to others who work under contracts to do or perform personally any work or services for other parties (except work or services provided for a client or customer of a profession or business).
Those covered by the NMW include:
agency workers
home workers
foreign workers working in the UK
UK workers working abroad
agricultural workers.
Taxi drivers and time-share sales workers have been found to be entitled to the NMW.
Those not covered by the NMW include:
the genuinely self-employed
the armed forces
most volunteers
au pairs and family workers
the homeless working on charitable schemes providing shelter
workers on work placements of up to one year on higher education sandwich courses
workers training under certain government schemes
workers in the first three years of government or European Social Fund work experience schemes
most apprentices under 26
workers in the first 6 months of a new job.
Fundamental to the concept of the NMW is an assessment of the hours for which a worker must be paid the NMW. "Time work" is work that is paid for by reference to a period of time, but which isn't "salaried hours work" (see below) eg hourly paid workers.
"Salaried Hours Work" is work under an annualised hours contract and is designed to deal with the difficult issue of term-time working.
"Output work" is work that is paid for by reference to the number of pieces made or processed, or transactions or sales completed, by the worker.
"Unmeasured work" is any other type of work. Included will be work where there are no specified hours and the worker is required to work as and when needed. Examples would include residential care workers and pub managers.
This is the averaging period over which the NMW must be paid for each reckonable hour. It is set at one month, except for workers paid by reference to a period of less than a month. So the pay reference period for a weekly paid worker would be one week.
Time when a worker is "absent from work" does not count - this includes time spent participating in industrial action. Time spent training is counted for NMW purposes.
For "time work" and "salaried hours work" time when a worker is available, at or near a place of work, for the purpose of doing work, and is required to be there, counts as reckonable time. However a worker who by arrangement sleeps where they work can only count hours when they are awake for the purpose of working. Telephone operators at a nurse bank were not entitled to the NMW even when their sleeping hours were unspecified.
Stand-by or on-call time will therefore probably be covered by the NMW if the worker is required to be on site.
Time spent travelling also counts as "time" or "salaried hours work" - but only to the extent that it is integral to the job and consists of time when the worker would otherwise be working. For "output work" and "unmeasured work" time spent travelling counts for NMW purposes.
The amount of "time work" is simply the total number of hours worked in the pay reference period.
For the three other types of work, the regulations provide for a "default" mechanism which applies unless various conditions are met.
For "output work" and "unmeasured work", the default mechanism is the same as the time work mechanism - the total number of hours actually worked. For "salaried hours work" the default mechanism is the annualised number of hours divided by the number of pay reference periods in the year.
The alternative mechanisms for "output work" and "unmeasured work" apply where there are written agreements in place setting out estimates of for "output work", the working hours in the pay reference period, and, for "unmeasured work", the average daily hours carrying out contractual duties. These averaging mechanisms are used to calculate the "ascertained hours" to be worked in the pay reference period.
The alternative mechanism for "salaried hours work" applies where the basic hours are exceeded in a pay reference period. The mechanism involves a hybrid of the default mechanism and actual hours worked.
The starting point is gross pay paid in that pay reference period, and gross pay paid in the next pay reference period in respect of the period under consideration. Various payments are excluded eg loans, advances of wages, redundancy payments and pension payments.
Various items are then subtracted: pay in respect of absences and industrial action, payments included in earlier reference periods, premium payments, unconsolidated allowances, tips not paid through the payroll, expenses, living accommodation in excess of a specified amount per week (see www.dti.gov.uk/er/nmw for current rate), employment-related expenses and deductions for the employer's own use. The question of whether or not an allowance is consolidated into basic pay is very important.
Certain payments then have to be added back in to arrive at the pay for NMW purposes. These include overpayments, amounts for the purchase of shares and accommodation costs.
The employer has to keep sufficient records to establish that it is paying workers at least the NMW. Training, fair estimate and daily average agreements must be kept. Records must be kept in a single document for each pay reference period, and must be kept for three years.
A worker who on reasonable grounds suspects that they are not being paid the NMW can require their employer, on 14 days' notice, to produce those records.
The burden of proof in establishing whether the NMW has been paid lies with the employer.
The NMW can be enforced by workers, through claims based on an implied contractual right to be paid at least the NMW, through "enforcement officers" and employment tribunals.The Inland Revenue, for example, issued an enforcement notice (overturned on appeal) against a hotel.
Enforcement officers can also impose a penalty of twice the hourly rate of the NMW per worker per day of non-compliance. Workers can complain to a tribunal if they are denied access to their records. The sanction is eighty times the hourly rate of the NMW.
Workers are also protected against victimisation for specified reasons to do with NMW. From October 2004, unless there are special circumstances (e.g. threats or continuing harassment by the employer) the employee must write to the employer raising a grievance and attend one or two meetings before bringing complaining to an employment tribunal. The normal time limit is extended by three months to allow this to happen. Compensation may be reduced if the applicant failed to follow the statutory grievance procedure.
A reduction in hours for cleaners has been found to be because of the NMW, and therefore amounted to victimisation.
There are also six criminal offences created by the NMW Act: refusal or wilful neglect to pay NMW, failure to keep records, keeping false records, producing false records, obstructing enforcement officers and refusing to give information to enforcement officers. Each carries a fine of up to £5000 (correct when this page was last updated).
For up to date information about current NMW rates and eligibility visit www.dti.gov.uk/er/nmw.
The NMW is of universal application - geographically, across different employment sectors, across employers of different sizes and for all ages of workers over 22.
The rate is reviewed annually based on recommendations by the Law Pay Commission. For up to date rates visit www.dti.gov.uk/er/nmw.
There is a development rate for workers aged 18-21 and a rate for 16 and 17 year olds.