The National Minimum Wage: rates and
enforcement
Standard Note:
SN06898
Last updated:
14 October 2015
Author:
Doug Pyper and Feargal McGuinness
Section
Business & Transport Section
Economic Policy & Statistics Section
This note provides details of current and historic National Minimum Wage rates; explains the
introduction of different rates for young workers and apprentices; sets out the legislative
mechanism for rate increases; explains the role of the Low Pay Commission; and discusses
the measurement of time for National Minimum Wage purposes.
The note also looks at the changing value of the minimum wage relative to prices and
earnings and provides data on the numbers of and characteristics of jobs that pay the
minimum wage.
For an explanation of the National Minimum Wage as it applies to volunteers and interns see
Library Standard Note: The National Minimum Wage: volunteers and interns SN697. For an
overview of the historical background to the National Minimum Wage see Library Standard
Note: The National Minimum Wage: historical background SN6897.
This information is provided to Members of Parliament in support of their parliamentary duties
and is not intended to address the specific circumstances of any particular individual. It should
not be relied upon as being up to date; the law or policies may have changed since it was last
updated; and it should not be relied upon as legal or professional advice or as a substitute for
it. A suitably qualified professional should be consulted if specific advice or information is
required.
This information is provided subject to our general terms and conditions which are available
online or may be provided on request in hard copy. Authors are available to discuss the
content of this briefing with Members and their staff, but not with the general public.
Contents
1
2
3
The rate
3
1.1
Current rates
3
1.2
Previous years
3
1.3
Rate increases
3
1.4
16 – 17 year olds
4
1.5
Children
5
Measurement of time
5
2.1
Different categories of work
5
1.6
Travel time and sleep-in care
6
Enforcement
6
3.1
Enforcement by workers
6
3.2
Enforcement by the State
7
Enforcement notices
7
Notices of underpayment and financial penalties
8
Proposed changes to maximum penalties
8
3.3
2
3
4
Value of the National Minimum Wage
9
2.1
9
Bite of the National Minimum Wage
Jobs paid at National Minimum Wage
10
3.1
11
Minimum wage jobs by region
Low Pay Commission Reports
12
2
1
The rate
The National Minimum Wage (NMW) applies to most workers and sets minimum hourly rates
of pay. The rates are provided in regulations made by the Secretary for State with
parliamentary approval, based on the recommendations of the Low Pay Commission (LPC).1
The rates are updated every October. The current rates took effect on 1 October 2014.
1.1
Current rates
The current NMW rates are:
Date
21 and over
18 to 20
16-17
Apprentice
1 October 2014
6.50
5.13
3.79
2.73
The apprentice rate applies to apprentices under 19, in their first year of level 2 or 3
apprenticeships; all other apprentices are entitled to the NMW rate for their age.
1.2
Previous years
The NMW was introduced on 1 April 1999 at the rate of £3.60 per hour for adults aged 22
and over, and £3.00 per hour for younger workers aged 18-21. Since then the rates have
been increased annually. The 16-17 year old rate was introduced on 1 October 2004
following the LPC’s recommendations (see below). The apprentice rate was introduced on 1
October 2010; at the same time, the age of entitlement to the main rate was reduced from 22
to 21. The historic NMW rates are as follows:
Date
21 and over
18 to 20
Under 18
Apprentice
1 October 2013
6.31
5.03
3.72
2.68
1 October 2012
6.19
4.98
3.68
2.65
1 October 2011
6.08
4.98
3.68
2.60
1 October 2010
5.93
4.92
3.64
2.50
Date
22 and over
18 to 21
Under 18
Apprentice
1 October 2009
5.80
4.83
3.57
N/A
1 October 2008
5.73
4.77
3.53
N/A
1 October 2007
5.52
4.60
3.40
N/A
1 October 2006
5.35
4.45
3.30
N/A
1 October 2005
5.05
4.25
3.00
N/A
1 October 2004
4.85
4.10
3.00
N/A
1 October 2003
4.50
3.80
N/A
N/A
1 October 2002
4.20
3.60
N/A
N/A
1 October 2001
4.10
3.50
N/A
N/A
1 October 2000
3.70
3.20
N/A
N/A
1 April 1999
3.60
3.00
N/A
N/A
1.3
Rate increases
There is no statutory provision requiring an annual (or even occasional) review or increase in
the level of the NMW. However, the legislation does allow the Secretary of State to increase
1
National Minimum Wage Regulations 1999 (SI 1999/584), as amended
3
the level by regulations. It also provides for him to seek the advice of the LPC before making
such an increase, although there is no strict requirement to do so.
Section 2(1) of the National Minimum Wage Act 1998 provides that:
The Secretary of State may by regulations make provision for determining what is the
hourly rate at which a person is to be regarded for the purposes of this Act as
remunerated by his employer in respect of his work in any pay reference period.
Section 51(5) of the Act provides that such regulations are subject to the affirmative
procedure and must be approved by both Houses of Parliament before coming into force.
Section 6 of the Act allows the Secretary of State to refer any matter relating to the Act to the
LPC “at any time”. This would, of course, include the level of the NMW and the question of
whether it should be increased.
Section 7(4) requires the LPC to consult organisations representing employers and workers
before arriving at their recommendations.
Section 7(5) requires them to “have regard to the effect of this Act on the economy of the
United Kingdom as a whole and on competitiveness” as well as to any additional factors
specified by the Secretary of State. If the Secretary of State does not accept the
recommendations of the LPC, he must lay a report before Parliament setting out his
reasons.2
1.4
16 – 17 year olds
The LPC’s 2004 report, Protecting Young Workers, was published in March 2004. Having
recommended in the past that 16 and 17 year olds should be exempt from the NMW, the
LPC concluded that there was evidence indicating that a minimum wage for this age group
should be introduced:
In our first three reports we recommended that 16–17 year olds should be exempt from
the National Minimum Wage. This reflected our view that 16–17 year olds form a
distinct segment of the labour market, preparing for working life, rather than being full
participants in the workforce. Some 70 per cent are in full-time education, with many
more in part-time education or training. And ideally all 16–17 year olds should be
receiving education or good quality training.
In our analysis for the fourth report, however, we became concerned by evidence of
full-time jobs offering extremely low rates of pay and which provided minimal training
and few development prospects. We therefore recommended to Government that we
should review the 16–17 year old group in detail this year, and advise on whether a
minimum wage could be introduced which put a stop to clear exploitation while neither
encouraging young people out of education nor harming the supply of training places.
We conclude that this balance is possible, and that a minimum wage for 16–17 year
olds should be introduced. On the assumption that it is compatible with the age strand
of the European Employment Directive (2000/78/EC), we recommend the introduction
of a minimum wage of £3.00 per hour for 16–17 year olds in October 2004 and the
retention of the current exemption from the minimum wage for apprentices under age
19. We also recommend that 16–17 year old participants on specified preapprenticeship programmes should be exempt from the 16–17 year old rate.
2
Section 6(3) and section 5(4)
4
We believe that the recommended rate is prudent and should avoid the risk of pricing
this age group out of the labour market. It should be reviewed periodically but we see
no reason automatically to link its level to that of the youth Development Rate. In a few
years’ time we would wish to look again at the position of apprentices and participants
on pre-apprenticeship programmes. 3
The Government accepted the LPC’s recommendations for a new rate for 16 and 17 year
olds, introducing this at £3.00 per hour from 1 October 2004.4
1.5
Children
Children do not qualify for the NMW. Those who have not passed compulsory school age
are legally classed as children.5
Section 1(2)(c) of the National Minimum Wage Act 1998 provides that, in order to qualify for
the NMW, the worker must have “ceased to be of compulsory school age”. In England and
Wales a child may not legally leave school until the last Friday in June of the school year
during which they reach the age of 16.6
2
Measurement of time
2.1
Different categories of work
The National Minimum Wage Regulations 1999 (SI/1999/584) distinguish between different
types of work. The method of calculating pay for NMW purposes differs depending on the
type of work undertaken. There are four different types: time work; salaried work; output
work; and unmeasured work.7 The Department for Business, Innovation and Skills’ (BIS)
guidance on the NMW - Calculating the minimum wage – explains in detail the types of work
and the appropriate method of calculating hours for NMW purposes.8 The following provides
an overview.
Where an employee is paid according to the number of hours actually worked, this is likely to
be time work. Time workers must be paid at least the NMW for the number of hours
worked.
Salaried work is work “done under a contract to do salaried hours work”. The worker must
be contractually entitled to be paid for an ascertainable basic number of hours and to be paid
an annual salary by weekly or monthly instalments. Salaried workers are entitled to the at
least the NMW for their basic hours, as well as for any hours worked in excess of their basic
hours.
Where a worker is paid according to the number of things produced or tasks performed, this
may be output work. A typical example is a home-worker who is free to start or finish when
they please. If the employer requires the worker to work set hours, the work will count as
time work rather than output work. Output workers must be paid either the NMW for the
number of hours worked or a “fair” piece rate for each thing produced or task performed. If
paid on the latter basis the work is known as “rated output work”. The worker must be
informed in writing of the basis on which he will be paid. Working out a fair piece rate
3
4
5
6
7
8
Low pay Commission Report, Protecting Young Workers: The National Minimum Wage, March 2004
National Minimum Wage Regulations 1999 (Amendment) (No. 2) Regulations 2004 SI 2004/1930
Education Act 1996, section 558
Education Act 1996, section 8; DfEE Circular 11/97, School Leaving date for 16 Year Olds
The National Minimum Wage Regulations 1999 (SI/1999/584), regulations 3 - 6
BIS, Calculating the minimum wage, April 2014
5
involves estimating the average hourly output of workers doing the work, reducing this
slightly by dividing the average output by 1.2, then dividing the NMW rate by the resulting
figure. The BIS guidance provides the following example:
A test has established that the mean average hourly rate for making a particular piece
is ten pieces in an hour.
Step 1: Take the mean hourly output rate for the piece or task: 10 items per hour.
Step 2: Determine the fair piece rate for that piece of work by dividing the mean hourly
output rate by 1.2, i.e. 10 ÷ 1.2 = 8.33 items.
Step 3: Divide the worker's minimum wage rate by the number of assessed items per
hour to get the fair piece rate: £6.31 ÷ 8.33 items = 76p fair piece rate. 9
Unmeasured work is work that is not time work, salaried hours work or output work
including, in particular, work in respect of which there are no specified hours and the worker
is required to work when needed or when work is available. 10 Measuring working time for
unmeasured work involves either recording every hour worked or arriving at a daily average
agreement with the worker. Such agreements must be in writing and made before the
relevant pay reference period.
1.6
Travel time and sleep-in care
Workers must be paid at least the NMW for travel that is a part of their work and not
incidental to it. If the work consists of assignments carried out at different places between
which the worker is obliged to travel, it is regarded in law as time work and must be paid
accordingly.
If a worker is contractually required to be at their place of work even when sleeping, on pain
of disciplinary action, the time spent there will be time work, irrespective of the level of
activity.11
3
Enforcement
The NMW is enforced in two ways: by workers, and by the State.
3.1
Enforcement by workers
The right to be paid the NMW takes effect as part of a worker’s contract. A worker paid less
than the NMW will be contractually entitled to whichever is the higher of:

the difference between his pay and the rate he would have been paid had the NMW been
complied with; or

the difference adjusted to take account of any increase in the NMW as at the time the
arrears are determined.12
Given that the worker is contractually entitled to this, he may enforce his rights by taking a
claim to an employment tribunal or to a civil court.13
9
10
11
12
BIS, Calculating the minimum wage, April 2014, p36
The National Minimum Wage Regulations 1999 (SI/1999/584), regulation 6
See Whittlestone v BJP Home Support Ltd [2013] UKEAT 0128_13_1907
See National Minimum Wage Act 1998, section 17
6
3.2
Enforcement by the State
The NMW is enforced by Her Majesty’s Revenue and Customs (HMRC) on behalf of the
Department for Business, Innovation and Skills. The principal means by which HMRC
enforces the NMW is through notices of underpayment, although, in more serious cases, the
employer may have committed a criminal offence,14 in which case HMRC may refer the
matter to the Crown Prosecution Service. There is also an associated system of naming and
shaming employers that breach NMW law, which is designed to deter employers from
underpaying workers. Under this system, employers issued with a notice of underpayment
are named via a Department of Business, Innovation and Skills (BIS) press notice.15
Before describing the operation of notices of underpayment, the below sets out the previous
system of “enforcement notices” and explains why the current system of financial penalties
was introduced.
Enforcement notices
Until 2009, HMRC enforcement officers issued enforcement notices, under section 19 of the
National Minimum Wage Act 1998, requiring employers to pay the NMW. Although officers
were also empowered to impose financial penalties, they could only do this if an enforcement
notice was ignored. This came to be seen as unsatisfactory: employers could easily avoid
paying the penalty, therefore it had little deterrent effect. The Low Pay Commission noted
this in its 2007 report:
We believe it is essential that employers who underpay the minimum wage are
penalised to an appropriate degree. At present, however, the minimum wage
legislation has no provision to enable this so long as the employer makes good
minimum wage arrears within a prescribed timescale; only those who refuse to pay
arrears might have a penalty applied. This in effect means that there is no deterrent to
noncompliance….16
The Commission recommended that “as a deterrent to non-compliance, the Government
introduce a penalty to apply to any employer found to have underpaid the minimum wage”.17
In May 2007 the Labour Government, having accepted the Commission’s recommendation,
sought views on how best to implement a “simpler, more effective penalty”.18 The
consultation document indicated that, at that time, 95% of non-compliant employers identified
by HMRC did not pay a penalty.19 The Government published its consultation response in
December 2007, stating that its preferred approach was to create a penalty, imposed
whenever a notice is served, based on the total amount of NMW arrears owed to all workers
by the employer.20
13
14
15
16
17
18
19
20
Enforcing either his common law contractual rights or the right not to suffer unauthorised deduction from
wages: see Part II of the Employment Rights Act 1996
National Minimum Wage Act 1998, section 31
See: BIS, Policy on HM Revenue & Customs enforcement , prosecutions and naming employers who break
national minimum wage law, March 2014 , pp20-21
LPC, National Minimum Wage - Low Pay Commission Report 2007, March 2007, p235
ibid.
BERR, National minimum wage and employment agency standards enforcement, 16 May 2007, p21
ibid., p16
BERR, National minimum wage and employment agency standards enforcement: Government response,
December 2007, p11
7
The changes to the penalty regime were implemented by the Employment Act 2008, which
amended the National Minimum Wage Act 1998 to replace enforcement notices with notices
of underpayment.21
Notices of underpayment and financial penalties
Sections 19 and 19A of the National Minimum Wage Act 1998 form the statutory basis for
notices of underpayment. Section 19 deals with the notices as they apply to arrears,
providing that where an officer, acting for the purposes the Act, is of the opinion that a worker
is entitled to additional remuneration, the officer may “serve a notice requiring the employer
to pay to the worker, within the 28-day period, the sum due to the worker”.22 Section 19A
deals with the financial penalty that attaches to the notice of underpayment. Section 19A(1)
provides:
A notice of underpayment must, subject to this section, require the employer to pay
a financial penalty specified in the notice to the Secretary of State within the 28-day
period.
The penalty is currently set at 100% of the total arrears owed to all workers to whom the
notice relates, subject to a maximum of £20,000 and a minimum of £100. The penalty is
discounted for prompt payment: the employer need only pay 50% of the penalty if he pays it
within 14 days, beginning with the day the notice was served. The percentage of areas
payable and the maximum and minimum amounts may be amended by regulations. Since
coming to power, the Government has used this power to:

increase the percentage from 50% to 100% of areas; and

increase the maximum from £5,000 to £20,000.
These changes were given effect by the National Minimum Wage (Variation of Financial
Penalty) Regulations 2014 SI 2014/547, which came into force on 7 March 2014.
3.3
Proposed changes to maximum penalties
In an article in the Financial Times, the Prime Minister, David Cameron, wrote:
We are … clamping down on those who employ people below the minimum wage.
They will pay the price with a fine of up to £20,000 for every underpaid employee –
more than four times the fine today. 23
A BIS press release on 15 January 2014 stated:
The government … will bring in legislation at the earliest opportunity so that the
maximum £20,000 penalty can apply to each underpaid worker.24
Provisions in Part 11 of The Small Business, Enterprise and Employment Bill propose to
amend the National Minimum Wage Act 1998 so as to set maximum financial penalties for
NMW underpayment on a per worker basis. This would mean that the more workers an
employer underpays, the greater the maximum penalty. At present, as detailed above, the
21
22
23
24
For further background, see: Employment Bill [HL] 2007-08, Library Research Paper 08/63, 11 July 2008
Section 19(2)
‘Free movement within Europe needs to be less free’, Financial Times [online], 26 November 2013 (accessed
12 September 2014).
National Minimum Wage penalties increased on rogue employers, BIS press release, GOV.UK, 15 January
2014 (accessed 12 September 2014)
8
maximum penalty attaches to the “notice of underpayment”, which may cover any number of
workers. Currently, the maximum penalty is £20,000 per notice. Thus, currently, if a notice
relates to 10 workers, each owed £20,000, the maximum penalty is £20,000, whereas under
the proposed system the maximum would be £200,000.
At the time of writing, The Small Business, Enterprise and Employment Bill is due to begin its
Committee Stage in the House of Commons on 14 October 2014. For more information
about the proposals in the Bill, see Library research paper RP 14/39.25
2
Value of the National Minimum Wage
The increase in the adult rate of NMW in October 2014 – from £6.31 to £6.50 per hour – is
set to be the first time since October 2007 that the value of the NMW has risen above
inflation. Prices rose by 1.2% in the year to September 2014 (as measured by the Consumer
Prices Index), compared to a 3.0% rise in the nominal value of the NMW between October
2013 and October 2014.
Real value of the National Minimum Wage at October, 1999-2014
Adult rate of NMW, September 2014 prices (adjusted by CPI)
£7.00
£6.50
£6.00
£5.50
£5.00
£4.50
£4.00
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
(Apr)
Adult rate of NMW applied to w orkers aged 22 and over from 1999 to 2010 and to w orkers aged 21 and over from
2010 onw ards. NMW rates are converted to real terms using CPI at October each year, w ith the exception of 1999
(uses CPI at April 1999) and 2014 (uses CPI at September 2014).
Source: Low Pay Commission and ONS, Consumer Price Inflation, September 2014
2.1
Bite of the National Minimum Wage
The ‘bite’ of the adult NMW – its value relative to median hourly earnings of employees aged
22 and over – was 52% in April 2013 (the latest date for which data are available). The chart
shows the trend since the introduction of the NMW in April 1999. Dashed lines indicate
discontinuities in the earnings series.
25
Small Business, Enterprise and Employment Bill, Commons Library Research Paper, 17 July 2014
9
Bite of adult NMW as % of median earnings (employees aged 22 and over)
UK, 1999-2013; Earnings data at April
56%
54%
52%
50%
48%
46%
44%
42%
40%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Dashed lines indicate breaks in the series.
Source: Low Pay Commission estimates based on data from ONS Annual Survey of Hours and Earnings
3
Jobs paid at National Minimum Wage
The LPC publishes estimates of the number of “minimum wage jobs”, defined as jobs paying
up to five pence above the minimum wage. As of April 2013 (the latest date for which data
are available), this included people aged 21 and over earning less than £6.24; people aged
18-20 earning less than £5.03; and people aged 16-17 earning less than £3.73.
The LPC estimates that there were 1.3 million minimum wage jobs in the UK at April 2013,
around 5.1% of all employee jobs.26 The chart below, taken form the Commission’s 2014
report, shows the proportion of jobs paid at or below minimum wage by type of employment
and size of business, as well as other characteristics.27 The profile of minimum wage jobs
and workers is discussed in greater detail in Chapter 2 of the 2014 report.
26
27
Low Pay Commission, National Minimum Wage: Low Pay Commission Report 2014, March 2014, p22-25
The LPC defines low-paid occupations or industries as those which “contain a high number or proportion of lowpaid workers based on the SOC [Standard Occupational Classification] and SIC [Standard Industrial
Classification] codes published by ONS.” For further details on this definition see Appendix 4 of the
Commission’s 2014 report, page 274.
10
3.1
Minimum wage jobs by region
Across UK countries and regions, the proportion of jobs paid at or below minimum wage is
highest in Northern Ireland (9.8%), followed by North East England (7.5%). London has the
lowest proportion (2.9%).28
28
Low Pay Commission, National Minimum Wage: Low Pay Commission Report 2014, March 2014, pages 2627.The Low Pay Commission has also published estimates of the number and proportion of jobs paid at or
below minimum wage by local authority in response to a Freedom of Information request (published 24 July
2014). Note the estimates are survey-based and, since the local authority figures are based on relatively small
numbers of respondents, they come with a large margin of error. Figures refer to employees working in each
local authority or region, rather than those living there – this distinction is particularly important where there
are large numbers of people commuting to or from a local authority in order to work.
11
Minimum wage jobs by country and region, April 2013
By region of work place
Number of minimum
wage jobs (000s)
% of all employee
jobs
1,332
5.1%
Northern Ireland
North East
Wales
East Midlands
67
76
73
116
9.8%
7.5%
6.4%
6.4%
West Midlands
Yorkshire & Humber
North West
South West
138
129
169
114
6.2%
6.1%
6.1%
5.2%
Eastern
Scotland
South East
London
116
100
124
111
4.8%
4.3%
3.5%
2.9%
United Kingdom
Note: Minimum w age jobs include people aged 21 and over earning less than £6.24;
people aged 18-20 earning less than £5.03; and people aged 16-17 earning less
than £3.73 in April 2013.
Source: Low Pay Commission, 2014 report and personal communication
4
Low Pay Commission Reports
At the time of writing, the LPC has produced the following reports:

June 1998: The National Minimum Wage First Report of the Low Pay Commission;

February 2000: The National Minimum Wage: The Story So Far. Second Report of the
Low Pay Commission;

March 2001: The National Minimum Wage: Making the Difference - Third Report.
(Volume One) of the Low Pay Commission;

June 2001: The National Minimum Wage: Making a Difference: The Next Steps. Third
Report (Volume Two) of the Low Pay Commission;

March 2003: The National Minimum Wage: Building on Success - Fourth Report of the
Low Pay Commission;

March 2004: Protecting Young Workers: The National Minimum Wage – Low Pay
Commission Report 2004;

February 2005: National Minimum Wage - Low Pay Commission Report 2005;

March 2006: National Minimum Wage - Low Pay Commission Report 2006;

March 2007: National Minimum Wage - Low Pay Commission Report 2007;

March 2008: National Minimum Wage - Low Pay Commission Report 2008;

May 2009: National Minimum Wage - Low Pay Commission Report 2009;
12

March 2010: National Minimum Wage - Low Pay Commission Report 2010;

April 2011: National Minimum Wage - Low Pay Commission Report 2011;

March 2012: National Minimum Wage - Low Pay Commission Report 2012;

April 2013: National Minimum Wage - Low Pay Commission Report 2013;

March 2014: National Minimum Wage: Low Pay Commission report 2014;

March 2014: The Future Path of the National Minimum Wage.
5
Low Pay Commission research
The LPC commissions research to inform its recommendations. Research commissioned
since 2012 is available on Gov.uk, here.29 Research commissioned prior to that is available
on the now archived Low Pay Commission website, here.30
29
30
Low Pay Commission Research, Gov.uk (accessed 2 March 2015)
Research Projects, Low Pay Commission website (accessed 2 March 2015)
13