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The Minimum Wage1. What is the current rate for the minimum wage? 4. Can I pay an employee less than the minimum wage, if he is willing to accept it? 13. Do we have to pay the minimum wage for the hours when people are 'sleeping over'? 15. What records do we need to keep? 16. What penalties might we be subject to, if we failed to pay the minimum wage? 1. What is the current rate for the minimum wage? The main rate (the standard or adult rate) is £5.05 an hour from 1 October 2005 (rising to £5.35 in October this year, all things being equal). The development rate (which applies to workers aged 18 to 21 inclusive, and is sometimes called the youth rate) is £4.25 an hour from 1 October 2005 (rising to £4.45 in October 2006, again, assuming no serious changes in economic conditions). A minimum wage of £3 an hour has been introduced for 16 and 17
year-olds with effect from 1 October 2004 (rising to £3.30 an hour
in October 2006). Apprentices of 16 and 17 years of age, however, are
exempted from the new rate. 2. 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? From October 2005 you have to pay 16 and 17 year-olds (other than apprentices) at least £3 an hour. The development rate (£4.25 an hour) only applies to those aged 18 to 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', there is no specified rate at which you must pay them
until they complete their training or reach their 19th birthday (whichever
comes first), when they must receive at least the development rate. 3. 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? 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 one). 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. 4. Can I pay an employee less than the minimum wage, if he is willing to accept it? 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). 5. 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? 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. 6. 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? 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. 7. Most of our employees do some overtime. Can we include overtime payments in calculating whether we are paying the minimum wage? 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. 8. 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? 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, you must now either pay them the minimum wage for the period actually worked, or introduce a system known as 'rated output work'. To apply the rated output system, you must have conducted a test to determine the average speed at which the job can be completed. (In some circumstances you can adapt a previous test to make an estimate.) This test has to be undertaken using all workers, or a representative sample of workers, and in similar conditions to those of the piece rate workers - for example, it is not acceptable to base the test on the use of much better machinery than they will have. You must then issue the piece rate worker, in advance, with a notice which: · says that such a test has been conducted (or that the speed
has been estimated); You are required to pay 120 per cent of the minimum wage (previously 100 per cent) for the time established by the testing procedure. This system has replaced the 'fair estimate' system previously used.
Since the onus is always on you to be able to prove that you complied
with the National Minimum Wage legislation, be sure to keep adequate records
if you use the rated output system. 9. We provide accommodation for our employees. How do we value that, when calculating whether they receive the minimum wage? 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: £3.90 (rising to £4.15 in October 2006) for each day that the accommodation is provided. There is, therefore, a limit of £27.30 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. 10. We run a catering business, and reckon that our employees double their takings from the tips. Surely we can make some allowance for this? 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. 11. 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? No. The only benefit-in-kind to which any value can be attributed is accommodation (see question 9). 12. Do we have to include travelling time in calculating the hours over which we have to pay the minimum wage? 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. 13. Do we have to pay the minimum wage for the hours when people are 'sleeping over'? There has been some to-ing and fro-ing over this. Current official guidance says that, if you specify hours when people may sleep in their employment contract, and you provide them with suitable sleeping facilities, then you do not have to pay them for those hours, except insofar as any work is done in them. If you do not specify any sleeping time, however, an Employment Tribunal might require you to pay for the whole of the time that the worker is at work. The European Commission has obtained agreement that on-call time will
be defined much more precisely, to differentiate it from working time
and rest time. However, this change will have to be implemented through
legislation in the UK, and there is as yet no indication of when such
legislation will come into force, or how it will apply. 14. 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? 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. 15. What records do we need to keep? 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), details of rated output work (see question 8), or 'daily average' of hours worked agreements. You need to keep your records for at least three years. 16. What penalties might we be subject to, if we failed to pay the minimum wage? 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 £10.10 a day (previously £9.70) 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. 17. Can people who worked for us in the past for less than the minimum wage come back now and demand that we pay the extra? Yes. The minimum wage was originally brought in (at £3.60 an hour
for adults, and £3.00 an hour for 18-21 year olds) in April 1999.
Subject to the exceptions outlined above for family or voluntary workers
(see questions 4 and 5), anyone who has worked for you
since at less than the minimum wage can require you to pay the difference.
There is however an overall limit of six years on the amount of arrears
that can be claimed. Although these FAQs highlight some key issues relating to employment law, it should not be considered comprehensive and is not a substitute for seeking professional advice on a specific issue. Disclaimer Although we have made every effort to ensure that the information contained in these FAQs is accurate, Business Hotline Publications and the named experts disclaim any liability for any errors or omissions. © Business Hotline Publications Ltd |
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