The National Minimum Wage is the minimum pay per hour almost all workers are entitled to. National Living Wage is for individuals above 21 and National Minimum Wage is for individuals below 21.
Current Rates
The rates change on 1 April every year –
Calculating the minimum wage
On average, an employee or worker must get the minimum wage for each ‘pay reference period’. This is the period their pay covers, for example a week or a month.
You work out the average hourly rate using:
- ‘gross’ pay each time someone’s paid – this is the total pay before tax and National Insurance (NI) are taken out
- how many hours someone worked for that pay
Example of working out average hourly rate
Sam’s paid weekly and works 40 hours a week. Their weekly salary is £500. They’re 24 years old and not an apprentice.
When you divide £500 by 40, their average hourly rate is £12.50. This is above the minimum wage for a worker aged 24.
Amounts excluded from minimum wage calculation
Some parts of pay do not count towards the minimum wage. This includes:
- tips and gratuities
- premium payments – for example, extra pay for working bank holidays or overtime
- a loan from an employer
- a pay advance
- repayment of expenses
- redundancy pay
- ‘Benefits in kind’ – for example, childcare vouchers, meal vouchers, company car and fuel, work mobile phone
Example 1
John is 27 and works 40 hours a week. He earns £11.50 per hour or £460 a week. He pays £10 a week to rent his uniform and is not refunded.
To calculate his minimum wage, John’s employer must deduct the uniform rental from the pay. This means John makes £450 per week (£460 minus £10) which is £11.25 per hour. This is below the minimum wage rate of £11.44.
John’s employer will need to pay the arrears back to John.
Example 2
Alex is 22 years old and not an apprentice. They’re paid weekly and work 40 hours a week.
Their total weekly pay is £540 before tax is taken out. This includes £100 in tips. You need to use £440 as the starting point to work out if they’re getting the minimum wage.
When you divide £440 by 40, their average hourly rate is £11. This is below the minimum wage for a worker aged 22. The employer needs to pay at least £11.44 an hour not including tips.
What counts towards the minimum wage
The National Minimum Wage is calculated on an employee’s total pay before tax and National Insurance (NI) are taken out.
Payments that count towards the minimum wage include:
- basic pay
- incentive pay – if performance related
- bonuses
- commission
Example of including a bonus when checking pay –
Pat is 22 years old and not an apprentice. They’re paid weekly and work 40 hours a week. Their total weekly pay is £560 before tax is taken out. This includes a £100 bonus.
You need to use £560 as the starting point to work out if they’re getting the minimum wage. When you divide £560 by 40, their average hourly rate is £14. This is above the minimum wage for a worker aged 22.
Employer checks
It’s a criminal offence for employers to not pay someone the National Minimum Wage or National Living Wage, or to fake payment records. Employers who discover they’ve paid a worker below the correct minimum wage must pay any arrears immediately.
HM Revenue and Customs (HMRC) officers have the right to carry out checks at any time and ask to see payment records. They can also investigate employers if a worker complains to them.
If HMRC finds that an employer has not been paying the correct rates, any arrears have to be paid back immediately. There will also be a fine, and offenders might be named by the government.
