The National Living Wage (NLW) was introduced as part of the National Minimum Wage (NMW) Regulations in April 2016 and governs the hourly rate at which workers aged over 25 are to be paid. On 1st April 2017, the rate increased by 30p from £7.20 to £7.50 per hour, giving full-time workers a pay rise of £600 per year. There were also smaller rises to the NMW for apprentices and workers. The new rates of pay in force from 1st April 2017 are:
National Living Wage 25 and over £7.50
National Minimum Wage 21-14 years old £7.05
18-20 years old £5.60
16-17 years old £4.05
Apprentice under 19 £3.50
Apprentice over 19 in first year of apprenticeship £3.50
Employers need to ensure that workers are paid in line with the above, or they risk serious consequences.
What is included in the calculation?
The correct pay and benefits must be included within the calculation and pay must be calculated for time worked and over the correct pay reference period, otherwise the risk is that while it appears that the NMW is being paid, it in fact is not.
Pay includes wages/salary, incentive payments which relate solely to performance and are made as part of a formal scheme and bonus payments.
However some elements of remuneration do not count as pay for NMW purposes, including overtime and shift premiums, allowances e.g. for working anti-social hours or being on call (unless these are consolidated into standard pay or fall under a formal scheme for rewarding performance), loans, advances of wages, pension payments, redundancy payments and tips. Benefits in kind (save for accommodation in certain circumstances) do not count towards minimum wage pay calculations either.
In addition, there are some deductions which will reduce pay for minimum wage calculation purposes, for example deductions in respect of items connected with the job such as uniform, equipment or tools, or deductions for meals or transport provided by the employer.
The pay reference period used in the calculation is usually set at the frequency at which the worker is paid e.g. 1 week or 1 month. Note that where the pay reference period includes a period either side of 1st April, employers should pay the rate which was in force at the time the pay reference period started before increasing the rate to the new, higher rate for subsequent pay reference periods.
The Government guidance gives the following example:
“If the pay reference period starts on 19 April, the allocated pay between 1 April and 18 April 2017 will be based on the October 2016 rate for the minimum wage rates of pay. Allocated pay from the 19 April 2017 onwards should be based on the April 2017 rates, which will apply from 1 April 2017, for the minimum wage rate”.
Where a worker is not paid at an hourly rate, employers will need to calculate the worker’s equivalent hourly rate to ensure compliance with NMW regulations.
Employers also need to ensure NMW/NLW is paid for all relevant working time, which includes time spent at the workplace working, time where the worker is required to be at work and is there and available to provide work (regardless of whether work is provided), time spent on standby or on-call at or near their place of work and time spent travelling on business or training.
One issue specific to the care sector is that of sleeping between duties. The Government guidance states that “A worker, who is found to be working, even though they are asleep, is entitled to the minimum wage for the entire time they are at work.” Examples of where the worker would be entitled to NMW/NLW while sleeping would be where the worker would be disciplined if they left the site during the allocated sleep time, or where there is a statutory requirement for them to be present. Given the importance of this evolving area, look out for our blog next week which will be dedicated to this topic.
The Government has published a tool to help employers calculate the correct pay rates for their workers: https://www.gov.uk/minimum-wage-calculator-employers, however, an employer’s obligations under the NMW Regulations are not straightforward and if you are in any doubt you should seek legal advice to ensure you are meeting those obligations.
Record Keeping and sanctions
You must ensure compliance with the National Minimum Wage Regulations and keep records for at least 3 years to prove this, otherwise there will be a presumption of non-compliance.
Where a HMRC investigation identifies that an employer has failed to comply with NMW Regulations, sanctions can range from enforcement notices and fines up to criminal convictions.
On 15th February 2017 the Department for Business, Energy and Industrial Strategy ‘named and shamed’ 359 employers who had failed to pay the correct rate of NMW or NLW. In addition, since the Department introduced the scheme to publicise non-compliance in 2013, more than £2million in fines have been issued to over 1000 employers, 24 of those employers being in the care sector.
Where there is no investigation by HMRC, a worker is able to report the employer to HMRC directly and is also able to bring a claim in the Employment Tribunal. It is important to note that any dismissal for which the reason or principle reason for dismissal is found to be connected with the worker raising complaints about not being paid minimum wage, or connected with the worker qualifying for a particular rate of NMW, will be automatically unfair.
The potential consequences of a failure to comply with the NMW Regulations are stark both in financial and reputational terms and where you have any questions about your organisation’s compliance you should not hesitate to take legal advice.