National Minimum Wage: Changes & Auditing

Dylan Loughlin

National Minimum Wage (NMW) came into force on 6th April 2015. All employers now have a legal obligation to ensure employees are paid the National Minimum Wage under the National Minimum Wage Regulations 2015. Employers should regularly audit to ensure that they are in complying with this legislation. This will be pertinent in the coming months, as the National Minimum Wage is due to increase again on April 6th, 2021.

There are various things you need to consider when doing your audit including working status, work type, the pay reference period, record keeping, any salary sacrifice arrangements, payments for work attire and time spent training.

Each of these is outlined in more detail below.

Status (National Minimum Wage Act 1998, Sections 1(2) & 54)

Section 1(2) of the NMW Act 1998 state a person qualifies for the national minimum wage (NMW) if they are an individual who:

· Is a worker,

· Is working, or ordinarily works, in the United Kingdom under their contact, and

· Has ceased to be of compulsory school age.

For a person to be a worker for National Minimum Wage purposes in accordance with Section 54(3) of the National Minimum Wage Act 1998 and qualify for minimum wage they must be working under a worker’s contract.

A worker’s contract is formed when there is either:

· A contract of employment or

· Any other contract by which the individual undertakes to perform work or services personally for someone else.

A contract can be written, oral, implied or a combination of these. A person working for an employer under a contract of employment will always qualify as a worker for National Minimum Wage purposes.

Current National Minimum Wage rates for April 2020

25 and over: £8.75

21 to 24: £8.20

18 to 20: £6.45

Under 18: £4.55

Apprentice: £4.15

From April 6th 2021, the National Minimum Wage will increase again after the Government accepted recommendations by the Low Pay Commission.

New National Minimum Wage rates for April 2021

23 and over: £8.91 (up 2.2%)

21 to 22: £8.36 (up 2%)

18 to 20: £6.56 (up 1.7%)

Under 18: £4.62 (up 1.5%)

Apprentice: £4.30 (up 3.6%)

Work Type (National Minimum Wage Regulations 2015, Regulations 21, 30, 36 & 44)

The hours for which the National Minimum Wage must be paid depends on the type of work that a worker is doing. Under the National Minimum Wage Regulations 2015 there are four types of work. The type of work being performed is determined by the basis on which a worker is paid. There are different rules and calculations for each type of work, and this has an effect on how their NMW is calculated.

Pay Reference Period (PRP) (National Minimum Wage Regulations 2015, Regulation 6)

The pay reference period is usually the period for which a worker is paid. It is used as the basis for calculating whether NMW has been paid.

A worker does not need to be paid at or above their National Minimum Wage rate for each individual hour worked in the pay reference period. However, they must be paid at or above the NMW on average for all the hours worked in the pay reference period.

Record Keeping (National Minimum Wage Regulations 2015, Regulation 59)

As an employer, you have a legal obligation to keep sufficient records to be able to demonstrate that you are paying at least the National Minimum Wage.

As the National Minimum Wage is expressed as an amount of money per hour it is necessary to keep a record both the amounts of money paid, and the number of hours worked by each worker in each pay reference period. For those workers with an hourly rate which is on or close to the National Minimum Wage, there is a greater need for more detailed records of both pay and hours to be kept. National Minimum Wage records should be kept for all workers, including those who are paid a salary.

For the purposes of North Minimum Wage, you must keep sufficient records for a minimum of three years. As an employer, you will need to decide what records to keep so that you are able to demonstrate that your workers have been paid National Minimum Wage. However, the type of information you need to be able to provide for any future minimum wage checks would include:

An important Point – if the employer is unable to provide any documented evidence for the above, it will be presumed that the employee has NOT been paid the National Minimum Wage.

Salary Sacrifice Arrangements

Salary Sacrifice arrangements involve an agreement for an employee to exchange part of their salary in order to receive additional benefits from the employer. Common examples of salary sacrifice schemes include Bike to Work Schemes, Child-care vouchers and additional employer pension contributions.

Work Attire (National Minimum Wage Regulations 2015, Regulation 12 & 13)

If a worker is required to purchase an item in connection with their employment, this purchase will reduce their pay for National Minimum Wage purposes in the pay reference period in which the expense occurred.

If a worker makes a payment to a third party for any items which have been specified by the employer, such as black trousers and black shoes, this payment will reduce National Minimum Wage pay in the pay reference period in which the expense occurred, as it is an expense incurred in connection with the worker’s employment. Any charge an employer makes for ordinary wear and tear to that uniform will reduce the workers National Minimum Wage pay.

Time Spent Training (National Minimum Wage Regulations 2015, Regulations 19 & 33)

For a worker performing time work, the time when a worker is receiving training required by the employer is treated as working time. As there is a requirement placed upon the worker by their contract, it forms part of their work arrangement with the employer.

Training which is undertaken which is not mandatory for workers of the business to complete is classed as additional training, therefore, the time spent completing this training is not considered as working time and therefore does not need to be paid for.

If you need assistance doing a National Minimum Wage Audit, or have any other questions about pay and changes to statutory entitlements, contact copacetic today.