Your Guide to Minimum Wage Legislation

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The Chancellor announced in this week’s budget that the National Living Wage will be increasing for those aged 23 and over. The rate will increase from £8.91 per hour to £9.50 per hour in April 2022.

In this article, we look at minimum wage legislation and what the increases mean for employers.

The National Minimum Wage vs the National Living Wage- is there a difference?

In the UK there are legal minimum wage rates which employers must pay by law. The rates vary according to your age and increase in April each year. Employers can choose to pay their staff more than the minimum wage rates, but they cannot pay below these thresholds.

The National Minimum Wage (NMW) rates apply to those aged 22 and below. The National Living Wage (NLW) is the rate of pay for those aged 23 and above.

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minimum wage


What is the apprentice rate, when is this applicable?

The minimum wage rate for an apprentice applies to those working on recognised apprenticeships. They cannot be paid to someone who is simply has ‘apprentice’ in their job title.

The above rate is applicable for apprentices under the age of 19 or someone over 19 but in their first year of their apprenticeship.  For example, an apprentice aged 23 can still be paid the apprentice rate for the first year of their apprenticeship. In year two of their apprenticeship though, they will be entitled to the NLW rate of £8.91 per hour.

For more information on apprenticeships, please see our previous article

Are there any individuals who are exempt from minimum wage rates?

The NMW and NLW applies to all employees and workers including zero hours workers, employees in their probation period, those whose earnings are based on commissions or bonuses.

There are some exemptions, such as those who are genuinely self-employed, directors (directors who are on the payroll and classed as employees are entitled to the minimum wage), those on work experience or those under the school leaving age.

Please note- there is a very strict legal test to determine if someone is truly self-employed, for more information please see our previous article here.

If an employee on NLW works additional hours without their employer’s knowledge, this could bring their average earnings below the minimum wage- would their employer face a claim under these circumstances?

It will depend on the individual circumstances, but this is why you need to monitor and fully record the working hours of your staff. A one off couple of extra hours to catch up will likely not amount to a breach but the extra hour here and there quickly has the potential to add up.

You need to ensure that staff only work overtime that is authorised and that they are paid at least the NMW or NLW for doing so.

The government website has a NMW and NLW calculator if you are in any doubt but to protect yourself from being held in breach of the regulations you must ensure that your workforce is paid at least the NMW or NLW on average for each pay reference period.

A pay reference period is a week if they are paid weekly or a month if they are paid monthly. To work this out for someone who is paid monthly, you divide their total hours worked that month by their gross earnings. This will give you their average hourly rate and this must be at or above the NMW or NLW.

Are there any types of payments that cannot count towards the minimum wage?

Yes, the below are examples of payments cannot count towards the minimum wage:

  • Tips/gratuity, service charges
  • Extra payments such as a shift allowance for working a night shift
  • Non contractual overtime
  • Advance wage payments or loans

If an employee leaves and has signed an agreement allowing us to deduct training costs from their final salary if they leave within a certain time period but this deduction will leave them below the minimum wage- is this unlawful?

No, as long as you have an express, written agreement or contractual clause allowing you to make the deduction. This must be signed by the employee and the terms of the agreement must be reasonable. For example, it would not be reasonable to deduct training costs from an Apprentice or make deductions for training that took place several years ago.

I have accidentally overpaid someone; they say that they do not agree to me making the deduction from their next salary because it will cause financial hardship and leave them below the minimum wage. Where do I stand? It was a genuine error.

This is another example of when you can make deductions from salary which may leave the employee below the minimum wage.

Where possible, try to agree a payment plan to lessen the hardship but an employee cannot refuse to pay back a salary overpayment.

Can I make someone redundant on the basis that I can’t afford the increase in their minimum wage rate and then recruit someone younger?

The short answer to this is ‘no’.

The right to be paid the correct rate of minimum wage is a statutory one and this is not something someone should face a detriment (such as lose their job) for. The dismissal will be automatically unfair, even if the employee has a short amount of service with you.

It could also be discriminatory on the grounds of age and will certainly not be seen as a genuine redundancy because the job is still there.

And finally…. if you are in any doubt as to your obligations regarding the minimum wage or when you can make deductions from pay, please contact out experts.