The National Minimum Wage (NMW) legislation in the UK is designed to protect workers by guaranteeing a minimum hourly rate of pay, and so compliance with the rules is a fundamental responsibility for employers.
Where non-compliance is identified, HMRC can issue fines and publicly name offending employers, which can severely impact a company’s reputation.
When you think about the NMW, the first thing that probably springs to mind is the different NMW rates, but that isn’t the only thing to consider when it comes to making sure your employees are paid correctly.
Employers must also understand the four worker categories as defined by the HMRC: salaried, per piece, by the hour, and in other ways, with each requiring a slightly different approach when it comes to calculating the NMW.
‘Time’ workers paid by the hour
‘Time’ workers are either full-time or part-time employees that are paid for the total number of hours that they are at work during a pay period – i.e., 125 hours in a month.
You must ensure that accurate records of hours worked are kept on an ongoing basis, and that the hourly rate paid to the employee meets or exceeds the minimum wage rate for their age.
Example:
Employee A, who is 23 years of age, works 125 hours during the month of July. To ensure that they are receiving the correct NMW rate, the calculation is £11.44 multiplied by 125 = £1,430. This employee must not be paid less than £1,430 for time worked in July.
Salaried employees
Salaried employees receive a fixed annual salary, regardless of hours worked, paid in regular monthly or weekly instalments.
To ensure NMW compliance, the average hourly rate over the pay reference period should not fall below the minimum wage. In order to calculate this, the employee will need to know the average number of hours that one pay packet covers.
Example:
Employee B is 19 years of age, and is contracted to work 1,800 hours in a year. They are paid monthly, which means each pay packet covers 150 hours work (1,800/12). This means employee B must not be paid less than £1,290 per month (150 multiplied by £8.60), in order for their employer to comply with the NMW.
‘Output’ workers paid per piece
Output workers are paid based on the number of items produced or tasks completed. This categorisation can only be used in limited instances where the employer is unsure how many hours the employee works.
For NMW compliance, employers must ensure that these employees workers can earn at least the minimum wage for each hour that they work.
To do this, employers will either need to work out the average rate of work per hour, or a fair rate for each piece of work completed.
‘In other ways’ workers
This category includes ‘unmeasured work’, commission based work and employees with complex pay arrangements that do not fit neatly into any of the other three categories.
To work out the minimum wage for unmeasured work, an employer must either record every hour worked over the pay reference period and ensure that the total remuneration meets or exceeds the NMW, or make a ‘daily average agreement of hours’.
A daily average agreement of hours refers to an employer and worker agreeing a typical number of hours per day that they expect to work on average.
National Minimum Wage rates 2024/25
The current National Minimum Wage rates, effective 1 April 2024, are as follows:
| 21+ (NLW) | 18-20 | Under 18 | Apprentice* |
From 1 April 2024 – 31 March 2025 | £11.44 | £8.60 | £6.40 | £6.40 |
*The Apprentice rate applies only if the individual is under 19 years of age, or over 19 but in the first year of their apprenticeship. Once the first year of their apprenticeship has been completed, they are entitled to receive the NMW for their age bracket.
Practical support from an outsourced payroll bureau
By outsourcing your payroll function to GH Payscheme, keeping abreast of legislative changes, misinterpretation of the rules, and processing errors need not be concerns. We can relieve you of your payroll headaches, and ensure that you are getting payroll right, every time.
To find out more about how our payroll team can support you, or to discuss your requirements in more detail, fill in our online enquiry form, or email payroll@ghpayscheme.com.