As the effective rate of the national minimum wage (NMW) continues to rise, employers will need to pay increasing attention to who qualifies and how it is calculated.
Last year – for the first time in many years – the Government imposed an above-inflation increase in the main NMW rate. From next April the introduction of the National Living Wage will result in a further increase of 7.5 per cent for workers of 25 or over, more than double the rate at which average earnings are increasing.
On top of that the Government has increased the enforcement budget, introduced “naming and shaming” of employers who have not paid the correct wages and increased the maximum penalties for non-compliance.
All these factors point to the need for employers to have a better understanding of the way the NMW works to ensure they remain in compliance. In this briefing have selected six areas where employers are most likely to slip up. The rules are complicated, and in this context we can do no more than alert you to areas where mistakes are most likely.
The NMW applies to all workers (subject to minor exceptions) but not to the genuinely self-employed. As well as employees and apprentices this definition extends to anyone engaged under a contract to perform work personally unless that is done as part of a “business undertaking”.
The nature of the relationship between the worker and the organisation he or she is working for is therefore as important as the nature of the work being undertaken. Recent cases have stressed the need to look at the practical reality of the relationship, but that is not to say that the way it is documented is not important. Features which point to worker status include the degree of control exerted by the employer on who does the work and how and when it is done.
Apprentices under 19 (or those over 19 but in the first year of their apprenticeship) currently have a separate rate from other young people, which can cause confusion, but there are proposals afoot to merge the rates.
In other cases the appropriate rate will be determined by solely by the worker’s age, which should not cause too much difficulty.
As a general rule most workers do not need to be paid for travelling between their home and their permanent place of work, but they do need to be paid for business travel or travel between assignments.
There are however a number of exceptions. For example home workers who are paid according to what they produce at home are entitled to be paid for travelling from home to the office at which they are required to report. Conversely, some travel time for hourly paid or salaried workers does not need to be paid where it is incidental to their duties and done outside normal working hours.
There has also been a recent decision from the European Court of Justice which decided that for mobile workers without a permanent office base, all travelling time should be regarded as working time. Although this case was not concerned with the payment due for this time, it will inevitably mean that the treatment of travelling time for NMW purposes will come under greater scrutiny.
Hourly paid or salaried workers generally need to be paid for all hours worked, even it is not part of their normal contracted hours. Difficulties can occur if workers voluntary work in excess of their contracted hours but do not claim overtime, when there may be no clear record of the extra hours worked.
Generally speaking time spent on call will be classed as working time, even if the worker simply has to be available to work if called upon to do so. There are however exceptions if the worker if the worker is able to wait at home, or where overnight accommodation is provided at or near the place of work. These exceptions will not always be engaged, so the exact working arrangements need to be checked against the relevant regulations and case law.
As a general rule no deductions from salary are allowed if this would take the rate of pay below the NMW. There are limited exceptions, but these can operate in an anomalous fashion, so there only safe approach is to check the rules for each deduction made.
Just to take a couple of examples:
- Deductions for tax and national insurance are of course allowed but not deductions under a salary sacrifice agreement
- Deductions for accommodation provided (up to a flat rate which is currently £5.08 per day) are permitted but not for work clothing provided by the employer, even if that issupplied at below market rates