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Home > > Business start-up > The national minimum wage
The national minimum wage
An employer must pay their workers a minimum amount per hour as defined by law. This is called the National Minimum Wage (NMW)
Who is covered by the NMW?
NMW applies to all workers, with certain exceptions such as:
- those under the age of 16
- apprentices under the age of 26 during their first year of apprenticeship
- those who are genuinely self employed
- family members working in the family business
- people working and living as part of a family (e.g. au pairs)
- voluntary workers
What are the rates of NMW?
From 1 October 2010 2009 2008 2007 £ £ £ £ Adult rate 5.93 5.80 5.73 5.52 18 - 21 year olds development rate 4.92 4.83 4.77 4.60 16 - 17* year old rate 3.64 3.57 3.53 3.40 *16 and 17 year old apprentices are exempt from the young workers rate. How is the NMW calculated?
The Regulations set out a rather complex procedure detailing the calculation of the NMW.
Benefits in kind, expenses, certain allowances and most deductions are not included. Enhanced payments for particular work will not count, but incentive or profit related payments will be included.
What working time counts for NMW?
Job-related travelling and training time is included. Periods of holiday or absence do not count (even though holiday pay is now obligatory), nor does time taken as rest breaks or industrial action.
What if the pay is not time-related?
The previous 'fair estimate agreements' has been replaced, and employers must pay their workers the minimum wage for every hour they work or a 'fair piece rate' initially set at 100% of the minimum wage.
What about family businesses?
Although there is an exemption for family members working in the family business, the regulations specifically refer to the employer's family. If the family business (i.e. the employer) is a limited company, then it does not have a family. Even if the family business operates as a sole trade or partnership, the only family members exempted are those who actually live at home.
What about company directors?
In common law, company directors are classed as office holders and can do work and be paid for it in that capacity. This is true no matter what sort of work they do and how it is rewarded.
The NMW does not apply to office holders, unless they also have contracts which make them workers.
It is unlikely that a company director will have an implied contract which makes him a worker. The rights and duties of an office are defined by that office, and it exists independently of the person who fills it. Directors can be removed from their office by a simple majority of the votes cast at a general meeting of the company. This contrasts with the rights and duties of an employee which are defined in a contract of employment.
What records have to be kept?
For workers earning in excess of £12,000 per year, employers simply have to keep sufficient records to demonstrate that the NMW has been paid. For workers earning less than £12,000 per year, full details of the NMW calculation must be kept.
Records should be kept for six years.
What rights does the worker have?
Individuals have the right to apply to a court or tribunal for non payment of the NMW. They are also protected from suffering any loss for such proceedings. There is a national helpline (0845 6000 678) which takes complaints from workers, employers and third parties. These lines operate Monday to Friday from 8 a.m to 6 p.m.
Telephone 0845 6000 678 Minicom 0845 915 3296 Orderline 0845 845 0360 Callers can be assisted in 30 different languages What about employers who do not comply?
The minimum wage regulations are enforced by HM Revenue & Customs, who can issue enforcement notices.
From 6 April 2009
Employers face a penalty if HM Revenue & Customs discover that the NMW has not been paid. Workers are entitled to the arrears of wages at current rates.
Further there is a penalty which is calculated based on the underpayments occurring on or after 6 April 2009 and this is set at 50 percent of the underpayment subject to a minimum of £100 and maximum of £5,000. Where employers comply fully with any notice of underpayment within 14 days of service there is entitlement to a discount of 50 per cent on the penalty.
Prior to 5 April 2009:
HM Revenue & Customs can also issue penalty notices, imposing civil fines of £9.70 a day until the underpayment is made good. However officers will give employers every chance to comply before considering any penalty. The maximum penalty is a fine of £5,000 for committing a criminal offence, covering refusal or wilful neglect to pay the national minimum wage; failure to keep national minimum wage records or keeping false records; and obstructing an enforcement officer.
Introduction
- Starting your business and how we can help
- Employed or self employed?
- Should you form a limited company?
- Buying a business
- Initial costs of starting in business
- Proving your credentials to investors
- Why market research is imperative for startups
Tax and your business
- The tax system for the self employed
- The tax system for companies
- VAT
- Claiming expenses - it's all or nothing
- Business deductions
- Late returns penalties
- Choosing your accounting date
Specific business types
Going into partnership
Planning pointers
- Preparing your business plan
- Raising finance for your business
- Growing the top line with a marketing-audit
- 'Green' travel arrangements
- Essential record keeping
A selection of our other business guides
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