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National Minimum Wage: What Counts?  Back

MILSLogo2Employers in the motor industry will be aware from recent RMIF updates that the National Minimum Wage Regulations have recently been updated and strengthened.  The new Regulations came into force in April 2016 and Regulation 2 increases the financial penalties payable by employers who underpay the National Minimum Wage from 100% to 200% of the underpayment due to each worker.

The penalties for failing to pay the National Minimum Wage range from civil enforcement to criminal enforcement and the naming and shaming of employers who fail to pay the National Minimum Wage.  The HMRC have also strengthened its resources in terms of investigating and auditing companies.

Many employers however remain, understandably, confused at the complex rules as to what does and doesn’t count towards NMW. Below is a summary of some of the main rules:

What constitutes pay and benefits that count towards National Minimum Wage?

The following elements count towards the National Minimum Wage:-

  • Basic Salary;
  • Bonus;
  • Commissions and other incentive payments based on performance (but not any premiums paid for overtime or shift work);
  • Piecework payments; and
  • Accommodation allowance (however the law on this area is detailed and beyond the scope of this article, so seek advice from the RMIF helpline).

What does not count towards National Minimum Wage?

The policy behind the National Minimum Wage is that workers should receive the National Minimum Wage in the form of cash, rather than benefits in kind, therefore the value of most benefits in kind (other than accommodation allowance as above) and will not generally count towards National Minimum Wage.

The following elements of pay therefore do not count towards the National Wage (and therefore should be ignored when trying to calculate total remuneration):-

  • Benefits in kind whether or not they are of a monetary value;
  • Loans by the employer;
  • Advances of wages;
  • Pension payments;
  • Lump sum payments on retirement;
  • Redundancy payments;
  • Tribunal settlements or awards;
  • Any allowances or payments that are not attributable to employee’s performance, for example, London weighting or an on-call allowance;
  • Expenses or allowances including the repayment of money spent in connection with the job;
  • Expenses for travel to a temporary work place (and related subsistence);
  • Tips and gratuities;
  • Premiums paid for overtime or shift work.

The last one of these is also complex:  The amount by which the overtime or shift payment exceeds the lowest rate that is normally payable is not taken into account therefore, for example, if the worker normally receives £3.00 an hour, but is paid £5.00 an hour for any overtime worked, only the £3.00 an hour is taken into account when calculating whether or not the employer has satisfied the National Minimum Wage.

Deductions and Payments that must be taken into account

Certain sums must be subtracted from the total gross pay in order to see whether or not the pay reaches the National Minimum Wage.  These include deductions from a worker’s wage packet such as those in respect of expenditure in connection with employment.  Most commonly, for example, to cover the cost of tools or uniforms or deductions which are for the employers own use and benefit.  An employer cannot therefore deduct such sums from the worker’s pay if it reduces the overall level below the National Minimum Wage.

Deductions and Payments that do not reduce National Minimum Wage Pay

There are certain sums that should not be taken into account (that is they should not reduce the amount of the worker’s total pay for the purpose of National Minimum Wage).  The employer will therefore comply with the law provided the worker’s pay, before these deductions or payments, is at least the National Minimum Wage.

  • Deductions from pay (or payments made by the worker) under the contract because of the worker’s conduct or any other event in respect of which the worker is contractually liable. It is therefore argued, for example, that if you have an express deduction from wages clause and the worker is at fault, that those deductions can be made lawfully;
  • Deductions because accidental overpayment; and
  • PAYE deductions for tax/national insurance.

The above is a summary of the main areas that motor industry employers come across when considering how to calculate National Minimum Wage.  It does not represent a comprehensive list and if you have a specific query then we suggest you seek advice from the RMIF legal helpline.

Andrew Macmillan, Solicitor, Motor Industry Legal Services



Posted by Sue Robinson on 03/06/2016