Most adult workers in the UK must be paid at least the national minimum wage. The measure was first introduced on 1 April 1999 by the National Minimum Wage Act 1998 and the National Minimum Wage Regulations 1999.   

All employers must pay the minimum wage – there is no exemption for small employers or discounts for geographical areas. The national minimum wage currently stands at £5.93 per hour, which means employers must offer their staff this amount at the very least. Tips paid to a worker through the employer's payroll are no longer able to be counted towards minimum wage.

* From October 1 2011 the NMW will increase to £6.08 per hour for staff aged 21 or over, £4.98 for 18 to 20-year-olds and £3.68 for 16-17-year-olds.

As of January 1 2011, employers who deliberately breach the minimum wage laws will be publicly named by the Department for Business Innovation and Skills. They will be given three months to 'put their house in order'.

Key features

The main rules of the minimum wage scheme are that:

  • Adult workers aged 21 and over, except “accredited” trainees and some excluded groups, must be paid at least £5.93 an hour

  • Bosses will also be required a 'development rate' of £4.92 to 18-20 year olds

  • Employers will also be required to pay at least £3.64 per hour to young workers aged between 16-17

  • Employers must keep records to prove they are paying at least the minimum

  • In a dispute at a tribunal or civil court, the burden is on the employer to prove that the minimum has been paid

  • An employer that has failed to pay the minimum will be required to pay arrears

 

Coverage and exceptions

Employees with a contract of employment are covered by the minimum wage legislation, as are freelance workers who are not genuinely self employed. In particular, homeworkers, pieceworkers, commission workers, workers from outside the UK, and British workers working temporally outside the UK are included.

The main classes of workers who need not get the minimum are:

  • The genuinely self-employed;

  • 16 and 17 year olds;

  • Some apprentices;

  • Trainees on government-funded schemes who do not receive wages from the employer;

  • Students doing work experience as part of a higher education course (although post-graduate students, and students taking holiday and “gap” year jobs, must be paid the minimum);

  • Members of the armed forces (although civilian MoD workers are covered);

  • Genuine voluntary workers;

  • People living and working within the family (although many au pairs, nannies and “companions” may be covered); and

  • Friends and neighbours working on an informal basis.

Calculating hourly rates

The formulae employers need to use to calculate hourly rates of pay of worker for the national minimum wage can be extremely complicated and employers may need to consult the detailed guidance published by the Department for Business Innovation and Skills (BIS). This guidance covers, amongst other things:

  • The “reference” period for averaging pay;

  • What payments are included;

  • What payments are excluded;

  • The treatment of benefits in kind and accommodation; and

  • Hours for which the minimum wage must be paid.

Reference periods

Workers need not be paid the minimum wage for each hour worked but must be paid the minimum on average for the time worked in the pay reference period. Generally, this reference period is the worker's actual pay period – eg a day, a week, a month. Importantly, remuneration earned in the period but paid later (perhaps as a bonus or commission) is included.

Payments included

The minimum wage is based on gross pay, so most elements of pay are taken into account. Specifically included are:

  • Incentive pay;

  • Bonuses;

  • Deductions of a proper penalty (eg for misconduct);

  • Deductions for an advance of wages;

  • Deductions to pay for shares;

  • Sums recovered for accidental overpayments;

  • Union subscriptions;

  • Workers' pension contributions;

  • Unforced payments by the worker for employer's goods and services; and

  • Accommodation provided up to a specified limit.