If HM Revenue & Customs (HMRC) finds that an employer has not paid their employees the minimum wage, they will likely face legal action.
This could include:
- Issuing a notice to pay money owed, going back a maximum of six years.
- Issuing a fine of up to £20,000 and a minimum of £100 for each employee or worker affected, even if the underpayment is worth less than this amount.
Most people paid an annual salary are classed as doing ‘salaried hours work’.
To find out if they are getting the minimum wage, you must work out how many basic hours they work in return for their salary.
Someone is usually doing salaried hours work if all the following apply:
- Their contract states how many hours they must work in return for their salary (their basic hours)
- They’re paid in equal, regular instalments throughout the year, for example monthly or every four weeks.
- There is no more than a month between each payment.
- They do not get paid more than once a week.
If someone is paid monthly, they don’t need to be paid the same amount each month, but they must get the same total amount every 3 months (each quarter of the year).
Salaried hours workers’ contracts might not state the total number of basic hours the worker must work over the entire year, but you must be able to work this out from the contract.
For example, if a contract states the days of the week someone is expected to work and the basic hours for each day, you can use this to work out the total basic hours someone is expected to work over the year.
You can then use this figure to make sure the rate of pay is at least the minimum wage.
Working out the hourly rate
Here’s how to calculate the hourly rate:
- Find the basic annual hours in the worker’s contract.
- Divide this by the number of times they get paid each year (for example 12 if they get paid monthly) – this gives you the average number of hours covered by each pay packet.
- Divide the amount they get in each pay packet by this number (average hours). This gives you the worker’s hourly rate.
Example
Jessica’s contract states that she must work 37.5 hours per week and, as she is 22, she is eligible for the National Minimum Wage rate of £10.18 per hour.
Her annual hours are therefore 1950 (37.5 x 52 weeks).
She gets paid monthly (12 times a year), so each pay packet covers an average of 162.5 hours (1,950 divided by 12).
This means she must be paid at least £1,654.25 per month (£10.18 multiplied by 162.5) for the basic hours in her contract.
Time off in lieu
The term “time off in lieu” is commonly used to describe an arrangement where an employer gives a worker time off work instead of payment for hours previously worked (i.e. unpaid overtime).
The concept of “time off in lieu” is not recognised in National Minimum Wage legislation.
For National Minimum Wage purposes, the hours previously worked are treated as working time in the pay reference period in which they are worked, and the time when the worker is “off in lieu” is treated as a time when no work is performed.
For salaried workers, this means that such time is not included as worked in the pay reference period when considering excess hours.
Extra hours
Employers must pay at least the minimum wage for any hours worked in addition to what’s agreed in the worker’s contract.
Additional hours worked and not paid will affect the calculation for National Minimum Wage purposes.
Please note that hours outside of the basic hours where payment is made, such as overtime, are not included in any excess hours consideration but such time is added to the time treated as worked in the pay reference period.
When considering whether a worker has worked over and above their basic hours it is necessary to consider, for each pay reference period, the actual hours worked and treated as worked.
Such hours are those which are:
- Worked in the pay reference period and fall within the basic hours as determined at the start of the calculation year. For example, the actual hours worked in the pay reference period.
- Included within the basic hours but where the worker was absent. For example, the hours when a worker was absent due to taking a holiday.
- Worked in the pay reference period outside of the basic hours where no additional payment was made. For example, unpaid work before or after official working time or unpaid overtime.
- Treated as worked for National Minimum Wage purposes. For example, time spent waiting, on call, travelling and training.
To determine whether and when excess hours have been worked it is necessary to compare the cumulative actual hours worked (1 and 3 above) and treated as worked (2 and 4 above) in the calculation year against the basic hours.
As a payroll expert, I strongly advise that you outsource all of these calculations and considerations to a firm like Knights Lowe who can take all the hassle and complications out of your hands.
For more information on salaried workers rights and the National Minimum Wage, please get in touch with one of our team.
