National minimum wage
Q. Our employees are entitled to buy products at a discount. Can we attribute a value
to this ‘perk’, in calculating whether we pay the minimum wage?
A. No. The only benefit-in-kind to which any value can be attributed is
accommodation (see question 9).
Q. We have an employee who says he wants to have a look at his records, to check
whether he has been paid the minimum wage. Is he entitled to do so?
A. Yes. You must provide the information within 14 days of receiving a written
request. Otherwise the employee can go to an Employment Tribunal, which may
impose penalties on you.
Q. What penalties might we be subject to, if we failed to pay the minimum wage?
A. You would be served with an enforcement notice, requiring you to pay the amount
due, and if you failed to comply with that you could be subject to fines of £8.20 a day
for each worker involved. You could also be prosecuted in the criminal courts for a
range of offences associated with the minimum wage, including a deliberate refusal to
pay it, fiddling the records, or attempting to mislead the Inland Revenue (which is the
investigating authority). If convicted of any of these offences you could be subject to
a fine of up to £5,000 in respect of each offence.
Q. What is the current rate for the minimum wage?
A. The main rate (the standard or adult rate) is £4.20 an hour (£4.50 from 1 October
2003). The development rate (which applies to workers aged 18 to 21 inclusive, and
is sometimes called the youth rate), is £3.60 an hour (£3.80 from 1 October 2003).
Q. I have taken on a couple of 17 year olds. Do I have to pay them the development
rate, or are there no restrictions on what I can pay?
A. There are no restrictions on what you can pay. The development rate only applies
to those aged 18-21 inclusive (or those who are older in particular circumstances –
see question 3). If your 17 year olds are starting on a contract of apprenticeship, or a
government training programme such as a national traineeship or ‘modern
apprenticeship’, you need not pay them the development rate until they complete
their training or reach their 19th birthday (whichever comes first).
Q. I’ve taken on a 23 year old with no job experience whatsoever (she is a single
mother). Do I have to pay her the adult rate?
A. Yes – unless she is undertaking accredited training under a written agreement, in
which case you can pay the training rate (which is the same as the development rate
– see question 1). The definition of accredited training varies according to where you
are based (England, Scotland or Wales), but she must train on at least 26 days during
the first six months, although the training does not have to take all day. You may only
pay her the training rate for six months.
Q. Can I pay an employee less than the minimum wage, if he is willing to accept it?
A. No. He cannot sign away his rights. If he is over 18, and not a family member
living in the family and working within the family business, you cannot pay him less
than the National Minimum Wage – unless he is working for therapeutic reasons only,
with no contractual obligation to work at all, and no right to any payment or benefit
(ie he is a voluntary worker).
Q. I employ my wife in the business, and I sometimes get my teenagers to put in a
few hours too. Do I have to pay them the minimum wage?
A. No. If you are the employer, they are members of your family, and they share your
family home, you are not obliged to pay them the minimum wage. With children who
have moved away from home, however – or a wife or husband who has moved out –
you would be obliged to pay it, as they are no longer living within the family.
Q. We pay a mixture of flat rate and bonuses. Employees might not get pay
equivalent to the minimum wage every week, but they probably would over the
month. Is this acceptable?
A. You must ensure that you are paying the minimum wage during each ‘pay
reference period’. This is normally the period over which you pay people – for
example, weekly or monthly. It cannot be longer than a calendar month. However,
you can base your calculation not only on the amount paid for that period, but also on
the amount earned during it – for example, by way of bonus or commission –
provided that the extra earned is paid in the next pay reference period. Obviously you
cannot then count that extra towards the minimum wage in the second pay reference
period – that would be double counting.
Q. Most of our employees do some overtime. Can we include overtime payments in
calculating whether we are paying the minimum wage?
A. You have to strip out any overtime premium from the sum that you include in your
calculations. To find the premium, you take the lowest rate that you pay each
employee for the same work during normal hours, and deduct that from the amount
that you pay in overtime. So for the purposes of calculating the minimum wage, you
are effectively paying people for overtime at the lowest rate that you would pay for
normal working.
Q. We employ people on a freelance basis, and at piece rates. Are they covered by
the legislation, and if so, how do we translate piece rates into rates per hour?
A. If they are genuinely self-employed – that is, they have freedom to work for
others, can refuse work, set their own hours, incur their own expenses, deal with their
own losses and so on – they are not covered by the legislation. Otherwise they are. If
they are covered, and you require them to work during given hours, you have to pay
the minimum wage for each hour worked. If they are literally paid by the piece, then
you and the worker have to reach a ‘fair estimate agreement’ on the time involved.
This ‘fair estimate’ must be agreed in advance and written down, and the time agreed
must not be less than 80% of the time that it would take the average employee (or
worker) to do the same job. The Government is proposing to tighten up the present
system to ensure that workers paid by the piece really do get the minimum wage.
Q. We provide accommodation for our employees. How do we value that, when
calculating whether they receive the minimum wage?
A. You can attribute a value to accommodation, when calculating whether your
employees receive the minimum wage, but the value has to be calculated by a
formula: the lowest of either (1) 57p per hour worked during the reference period
(less a proportionate reduction for each day that accommodation is not provided), or
(2) £3.25 for each day that the accommodation is provided. There is a limit of £22.75
a week on the value you can attribute to accommodation. If the accommodation you
are providing is worth more than that, you will either have to take the loss or ask the
employees to make a contribution – either way, the excess cannot be counted
towards the minimum wage.
Q. We run a catering business, and reckon that our employees double their takings
from the tips. Surely we can make some allowance for this?
A. No – not unless you put it through the payroll. Even if all the tips are collected,
pooled and divided equally – so that you know how much employees are making from
them – you cannot include this figure when calculating whether your employees are
receiving the minimum wage, unless you put the lot through the payroll.
Q. Do we have to include travelling time in calculating the hours over which we have
to pay the minimum wage?
A. Yes if the travelling is done on your business. However, you can exclude travelling
between home and work – and that applies even if work is being done well away from
your normal work site. You can also exclude rest breaks while travelling, although
only if the employee has some choice over how those rest breaks are taken.
Q. What records do we need to keep?
A. There are no strict requirements set out, but all employers must hold sufficient
records to establish that they are paying workers at least the national minimum wage.
You need to keep records because the onus of proving that you have paid the
minimum wage is on you. If one of your workers (or ex-workers) claims that he has
not been paid enough, it is not up to him to establish that he is telling the truth; it is
up to you to prove that he is not. So keep sufficient records of hours worked and
wages paid, together with ancillary evidence such as training agreements (see
question 3), fair estimate agreements (see question 8), or ‘daily average’ of hours
worked agreements. You need to keep your records for at least three years.