Further resources:

Our video - The National Minimum Wage (NMW)


Salary Amendment Letter

Statutory rates and deductions

Apart from the genuinely self employed, workers & employees must be paid at least the National Minimum Wage (NMW). This is reviewed by Government each October.

The rate of pay should never be determined by or influenced by race, sex, age, disability, sexual orientation, religion, marital status or because an individual is on a fixed-term or part-time contract.

See our section on EQUAL PAY for more details on a woman’s right to equal pay (and other terms) with men.

Employers are required to determine when they will make wages payments and to ensure that payments are not late. This is normally described in the contract of employment.

There are some circumstances where an employer may make deductions from an employee’s wages, either to take payment for pre-agreed benefits, or to make good some damage done by the employee, perhaps through losing Company equipment or in the case of retail staff, if the employee’s till does not balance and the employer can be sure that the employee is responsible. However, there are limitations to how much can be deducted (particularly for retail employees) and we would strongly advise that the right to take deductions be clearly described in the employment contract and the employee handbook. It is also necessary to inform an employee of an intention to make deductions, how much and for how long.

The employer is however implicitly allowed and indeed required to make deductions on behalf of employees and most classes of ‘worker’ for statutory purposes, normally tax and National Insurance Contributions.

National Minimum Wage

The National Minimum Wage (NMW) applies to employees and workers of 16 years of age and is banded according to age 16yrs – 17yrs; 18yrs – 20yrs; 21yrs+.

The NMW rates applicable from October 1st 2015 are as follows:

21yrs or over: £6.70 per hour (increased from £6.50 in 2014)

18yrs – 20yrs: £5.30 per hour (increased from £5.13 in 2014)

16yrs – 17yrs: £3.87 per hour (increased from £3.79 in 2014)

Qualifying apprentices: £3.30 per hour (increased from £2.74 in 2014)

NB from 1st April 2016 the new Living Wage of £7.20 per hour will be introduced for all workers aged 25 and over.

Employees & workers must be paid on average at least the hourly rates above. The average is taken from the pay period e.g. over a month if the person is paid monthly, over a week if paid weekly.

Common pitfalls: Low paid salaried employees….if you have salaried employees remember to check that their contracted hours when matched against their earnings do not breach the minimum wage, for example, a 21 year old Admin Assistant is paid £9,900 per annum for a contracted 40 hour week - £9,900/52 = £190.38 per week. Dividing this number by the contractual weekly hours (40) this is £4.76, well below the required rate of £6.70 from Oct 2015.

The regulations require records to be kept for a period of 3 years, but is advisable to keep records for 6 years. This is because the NMW is a contractual right, and breach of contract claims of this nature can be brought within 6 years of breach. An employee then can claim up to 6 years back pay for breaches of NMW.

Tips, gratuities etc cannot be used to show compliance with NMW, neither should overtime or shift allowances, benefits in kind or contractually required deductions for tools/uniform etc (though overpayment deductions will not affect the NMW). It is permissible to make an adjustment for accommodation, but only to a point – at the time of writing this is a maximum of £4.82 per hour or £33.74 per week. There are special rules for the treatment of working time when employees are travelling, training or on call. These complex arrangements are outside of the scope of this article and employers should contact us for further advice.

Typical employment law pitfalls

Failing to calculate the hourly rate for their staff correctly e.g. for relatively low paid salaried employees. Employers sometimes get into trouble by assuming that when an employee is leaving the final pay can be withheld to compensate the employer from, for example, loss of equipment not returned by the employee. While this is sometimes possible, great care is required when contemplating deductions to avoid breaches of the Wages Act. Another common error concerns employers who fail to appreciate that when an employee is dismissed (even for gross misconduct) they will be due wages for untaken holiday and to cover any period for which they were suspended e.g. while an investigation was ongoing. Unlike most unfair dismissal claims (which must be brought within 3 months of the dismissal), claims under the Wages Act can be brought within 6 months of the incident occurred and in certain cases, e.g. NMW breaches, compensation can be claimed for up to 6 years back pay.

Most breaches of the Wages Act and the NMW come to light on the back of another dispute with the employee (perhaps after a dismissal) when their legal advisors apply some standard tests to see if employment law breaches other than that complained of may have been committed by the employer.

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