Wake-up call – Ensure you pay the minimum wage

18 February 2011
Wake-up call – Ensure you pay the minimum wage

If you're tempted to breach minimum wage legislation, beware - you could now be named and shamed. Legal expert Nicola McMahon explains.

Employers seeking to tighten their belts during the economic downturn should ensure that they do not fall foul of the national minimum wage legislation. This is even more important in light of the recent announcement that employers who breach the requirements could be publicly named and shamed.

The National Minimum Wage Act 1998 (NMWA) introduced into the UK a national minimum wage (NMW) which must be paid to all workers.

The current rates - increased in October each year - are:

â- £4.92 for workers aged 18-21
â- £3.64 for workers aged 16-18

Whether an individual has received the NMW is calculated by dividing the amount they have earned by the number of hours that they have worked during their pay reference period. This is the period of time for which their wage is regularly paid, be that daily, weekly or monthly.

Hours The method of calculating the number of hours for which the NMW must be paid will depend on the type of work undertaken.

For individuals paid by reference to the time they work, who work for a set number of hours a day or who are paid an annual salary for a fixed number of hours, the calculation must cover the time that they are actually working, on standby or on call at or near their place of work, and travelling or training during normal working hours. Salaried employees' hours also include fully paid absence from work.

Workers who are not required to work certain hours but are paid according to their productivity must either be paid the NMW for each hour they work or a fair piecework rate, calculated as 120% of the time taken by the average worker to produce each piece or perform each service. Additionally, these workers must be paid for time travelling on business.

Unmeasured work which does not fall into one of the above categories should either be paid according to every hour worked or paid for an agreed daily average of hours to be worked.

Total pay Pay used to calculate NWM includes basic pay - before deduction of tax and national insurance - bonuses, commission and piecework payments.

Employee loans, advances, pension payments, retirement lump sums, redundancy payments, premium payments for working at special times, allowances on top of basic pay and tips must not be included in the calculation. Any deductions from pay for refunds of the cost of tools, uniform or travel expenses will reduce pay for the purposes of calculating the NMW.

Employers must ensure that they are able to identify and must keep adequate records of the following in respect of each worker:

â- Pay reference period.
â- Total pay.
â- Hours worked.
â- Hourly rate - calculated from the above.
â- NMW paid.

HM Revenue & Customs officers can carry out inspections at any time to assess compliance with the NMWA and can issue an enforcement notice requiring the employer to pay the NMW and make up past underpayments. Failure to comply with an enforcement notice can result in the service of a penalty notice of twice the current NMW for each day that the enforcement notice is not complied with.

Continued failure to comply could result in civil proceedings being brought against the employer. It is also a criminal offence to refuse or wilfully neglect to pay the NMW, fail to keep the records, to keep false records, to produce false records or to refuse or prevent an officer from seeing the necessary records. A company as well as a company's officers may be found guilty of such offences.

Workers have a right to see their records to check that they have received the minimum wage and can present a claim to an employment tribunal and receive up to 80 times the NMW if an employer fails to provide this information on request.

A worker who does not receive enough can also bring a claim for unlawful deductions in an employment tribunal, or a claim for breach of contract, and may be entitled to back pay of all NMW shortfalls.

Additionally, a worker may bring a claim in an employment tribunal for unfair dismissal if they are dismissed because they had become eligible for the NMW.

Nicola McMahon, Charles Russell

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