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Employment

Employment

The National Minimum Wage: calculating your pay rate

You can check if your employer is paying you enough by calculating your minimum wage pay rate.

How to check your pay

National Minimum Wage Helpline 0845 6000 678

For most workers, you will calculate your minimum wage pay by calculating your average hourly rate. There are different rules for piece work (sometimes called 'output work' - this is work where you're paid for making or processing a number of items, or for completing a number of tasks). You will need to check which elements of your pay count towards the National Minimum Wage and which do not.

What pay counts towards the National Minimum Wage?

For most workers, minimum wage pay is calculated based on gross pay (that is, pay before tax). This includes any bonuses and commission. Tips only count if they are paid through the payroll.

If you get a special allowance on top of your basic pay, that doesn't count towards the minimum wage. Examples of special allowances include extra money for:

  • working in dangerous conditions
  • working unsocial hours
  • working in a particular area (for example, London Weighting)
  • performing special duties over and above a worker's normal duties
  • being 'on call' for work

Other payments that don't count towards the National Minimum Wage include:

  • expenses payments
  • extra money for shiftworking or overtime.
  • any money that you are required to use in connection with your job (for example, to buy a uniform or to pay for transport that your employer requires you to use)

Calculating your average hourly rate

Your average hourly rate must be at least the minimum wage. To work this out you first add up everything you've earned over a period (called the 'reference period' - if you are weekly paid this is normally a week, if you are monthly paid this is normally a month), before tax. You then divide this by the number of hours you worked in that period to get your average pay. More details on calculating your pay can be found in Department for Business, Enterprise and Regulatory Reform (BERR) guidance. It doesn't matter if your basic rate is less than the minimum wage as long as your average pay (including things like commission and bonuses) is enough.

The example calculations below are for the rates as at 1 October 2008. When calculating your pay rate you use the National Minimum Wage rate in force at the start of the reference period. So, for example, if you are monthly paid and your pay period starts on 10 September and runs until 10 October, you will be entitled to the National Minimum Wage rate in force on 10 September for the whole period, even if the National Minimum Wage rate changes on 1 October.

Example calculation

A 30 year old, weekly paid employee works a 40 hour week. They earn a basic hourly rate of £3.25 plus commission. This week they earn £100 commission.

 

 

Basic pay

£3.25 x 40 = £130

Commission 

£100

Total earned (before tax)

£130 + £100 = £230

Divide by hours worked

£230 / 40 = £5.75 per hour

This is above the minimum wage rate for a 30 year old of £5.73, so they are receiving more than their minimum entitlement.

Do non pay 'benefits in kind' count towards the minimum wage?

Apart from accommodation, benefits in kind don't count towards the calculation of the National Minimum Wage, even if they're taxed as income. Examples of benefits in kind are where your employer pays for or subsidises:

  • meals or luncheon vouchers,
  • uniforms,
  • private health care or medical insurance,
  • motoring costs

Accommodation costs

If an employer provides accommodation, some of this (from 1 October 2008 £4.46 a day, or £31.22 a week) can count towards minimum pay - this is called the 'accommodation offset'.

Example calculation

A 22 year old, weekly paid worker paid an hourly rate of £5.50 for a 40 hour week.  The employer deducts £50 per week for accommodation which is provided seven days a week. The employer provides meals. The employee receives £20 in tips received directly from customers but these do not count towards the National Minimum Wage.

 

 

Basic pay

£5.50 x 40 = £220

Rent charged

£50

Total earned

£220 - £50 = £170

The employer can add up to £4.46 per day to account for the accommodation. In this case it is provided seven days a week.

The employer cannot add on anything for any other benefits in kind, such as the meals. The tips do not count as they are not paid through the payroll.

 

 

Accommodation offset

£4.46 x 7 = £31.22

Total pay for minimum wage purposes

£170 + £31.22 = £201.22

Divide by hours worked

£201.22/ 40 = £5.03 per hour (to the nearest penny)

This is below the National Minimum Wage rate of £5.73, the employee should raise this with their employer.

Piece rates

Employers who pay workers on a piece-rate basis either have to pay their workers the minimum wage for each hour worked or have to set a fair piece rate which allows their workers to earn the minimum wage. In order to use a fair piece rate scheme your employer must give you a written notice giving details about it before you do the work, the BERR guidance has more details. Piecework is often done from home.

Example calculation

A 20 year old, weekly paid worker is paid £2 for each widget they produce. In a particular week they work 30 hours and produce 60 widgets.

 

 

Basic pay

£2 x 60 = £120

Divide by hours worked

£120 / 30 = £4 per hour

This is below the National Minimum Wage rate for a 20 year old of £4.77. However, this may simply be because the worker does not work as fast as they could be expected. The employer is required to set the rate per widget so that a worker producing widgets at an average rate will get more than the minimum wage (they should get 1.2 times the minimum wage). This means that a worker should get at least the minimum wage even if they are slightly slower than average.

If the worker feels that their work rate is about average then they should raise this with their employer.

Where to get help

HM Revenue and Customs (HMRC) National Minimum Wage Helpline gives confidential help and advice on the minimum wage. You can also call the helpline if you want to make a complaint about an employer who you suspect in not paying the minimum wage. Call the helpline on 0845 6000 678 - lines are open Monday to Friday 9.00 am to 5.00 pm. All calls are charged at local rates. You can also contact the helpline via email.

The Advisory, Conciliation and Arbitration Service (Acas) offers free, confidential and impartial advice on all employment rights issues. You can call the Acas helpline on 08457 47 47 47 from 8.00 am to 6.00 pm Monday to Friday.

Your local Citizens Advice Bureau (CAB) can provide free and impartial advice. You can find your local CAB office in the phone book or online.

If you are a member of a trade union, you can get help, advice and support from them

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