What is the National Minimum Wage and National Living Wage?
The National Minimum Wage (NMW) is the minimum pay per hour to workers of at least school-leaving age are entitled to. National Living Wage (NLW) is the rate for workers aged 21 and over. The rates are updated on the 1st of April every year. No matter the size of your company you legally have to pay the correct wage to your employees.
Your employees are entitled to the correct rate of NMW or NLW even if they are:
- Part-time
- Casual staff
- Agency workers
- Paid on commission
- Apprentices
- Trainees
- On probation
- Disabled
- Foreign or offshore workers employed by a UK business
What happens when employers underpay?
The cost of underpaying your employees can be detrimental to your reputation and affect your business financially.
Employers that fail to pay workers at least the National Minimum Wage must pay back any underpayments owed to the employee. There is also a large fine of up to 200% of arrears capped at £20,000 per worker which is paid to the government.
For example, you may have seen that recently a number of well-known organisations have been named and shamed publicly for National Minimum Wage failures, and this has led to a number of unwelcome fines and damage to their reputation.
- 47% wrongly deducted pay from their worker's wages, including for uniforms and expenses.
- 30% failed to pay workers for all the time they had worked, such as when they worked extra hours or overtime
- 19% paid the incorrect apprenticeship rate.
As an employer, you are under a legal obligation to ensure that your workers are paid at least the National Minimum wage or National Living Wage. However, we know there are a number of common mistakes many businesses make regularly leading to underpayments.
The most common National Minimum Wage mistakes and how to avoid them.
1. Making wage deductions for items or expenses unrelated to the job.
A deduction, or payment from a worker to an employer, becomes a minimum wage issue when it risks reducing the worker’s pay below their minimum legal entitlement. If a transaction reduces a worker’s minimum wage, it will be investigated to find out if the employer is underpaying the employee.
Employers can only make a deduction in specific situations and they must follow your employment contract terms.
Your employer is not allowed to make a deduction from your pay or wages unless:
- It is required or allowed by law, for example, National Insurance, income tax, or student loan repayments
- You agree in writing to a deduction
- Your contract of employment says they can
- It is a result of any statutory disciplinary proceedings
- There is a statutory payment due to a public authority
- You have not worked due to taking part in a strike or industrial action
- It is to recover an earlier overpayment of wages or expenses
- It is a result of a court order
A deduction must not reduce your pay below the National Minimum Wage rate (except a limited amount for accommodation). This applies even if you have given your permission for it.
2. Making wage deductions or taking payments from workers for the employer’s own use or benefit.
It does not matter whether or not:
- The employer makes a profit from the transaction
- The deduction is made from gross or net pay
- The worker agrees to the deduction/payment
- The worker benefits from the arrangement
- The wage deduction will still be investigated if the employee is being underpaid NMW or NLW.
For example, if you provide transport for your workers at a loss, any deduction you make from wages for providing it helps to reduce your loss.
The amount you gain by making the deductions is for your own use and benefit. It is important that your company factors in any additional costs for employees working arrangements to avoid taking this from their wages.
3. Failure to pay a worker for any time during their shift when they are at the workplace and required to be available for work.
The national minimum wage is worked out at an hourly rate, but it applies to all eligible workers even if they are not paid hourly. This means that you still need to work out every employee's equivalent hourly rate to ensure they are getting at least the minimum wage.
For example, if you call a time worker into the office to help with an urgent order, but the delivery is delayed. Whilst that worker is in the office and available to work you must pay them at least the minimum wage rate for the time.
However, if the worker is at home waiting for you to call them to the office. You do not have to pay them the minimum wage for the time they are at home.
You can work out the National Minimum Wage for each employee by using an online calculator.
4. Failure to pay a worker for any travelling time
Time spent travelling between home and place of work and back again does not count as working time and the minimum wage is not required. ( unless the employee is working whilst travelling, for example on a laptop on a train)
The periods of travelling which are considered as working time for minimum wage purposes include times when the worker is:
- Travelling for the purpose of carrying out work
- Waiting for a train or form of transport in connection with work travel
- Travelling from one work assignment to another
- Waiting to collect goods, meet someone in connection with work or start a job
- Travelling from work to training venues
Any rest breaks taken during travelling are treated the same as any other rest breaks and do not count as working time for minimum wage purposes. Therefore, it is important that your company arrange a travel allowance scheme or look into alternative ways you can fund travel expenses for your employees. Furthermore, providing a travel allowance or company car can be a huge benefit for employees to stay at your company.
5. Failure to pay a worker for any time spent training for salaried hours work, the hours of work that count for minimum wage purposes include:
- Time spent at the workplace working
- Time spent at the workplace and required to be available for work
- Time required to be available for work, either on standby or on-call. ( unless the work is at home)
- Time spent travelling on business
- Time spent training
6. Failure to apply the annual increase to minimum wage rates that come into effect on 1st April.
| NLW 21 and over | 18 to 20 | 16 to 17 | Apprentice | |
As of April 2024 | £11.44 | £8.60 | £6.40 | £6.40 |
It is important that employers keep up to date with the annual minimum wage rate increase. This increase depends on the age of the employee and failure to increase their wage accordingly can be a common mistake many employers make.
7. Failure to pay sufficient money for any time worked during a sleep-in shift
Some sectors such as the care sector, workers perform sleep-in shifts.
This means that workers:
- Are contractually obliged to spend a shift at or near their workplace, usually at night but it could be during the day
- Are expected to sleep for all or most of that shift
- Are woken if required to undertake a specific work activity
For time work and salaried hours at work, the NMW regulations expressly require that, in order for the time spent asleep not to be eligible for minimum wage purposes, the employer must provide suitable sleeping facilities. If not provided then the minimum wage must be paid for the entire shift.
Outsourcing your payroll to the Pierce payroll team can ensure you avoid making any mistakes when paying your workers the National Minimum Wage or National Living Wage. The team provides proactive advice to optimise your payroll function and propose solutions that help build and retain employee confidence. Contact them today on 01254 688100.