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Minimum Wage

A minimum wage (or national minimum wage, or NMW) is the lowest per hour wage that you can pay to an employee. The law defines this figure, and most of the countries in the world have it, except Denmark, Norway, Sweden, Switzerland, and Singapore. In the UK, not meeting the threshold is a criminal offence.

What is the UK minimum wage?
The minimum wage does not apply to everyone
How is the national minimum wage calculated?
What records on the national minimum wage to keep?
What if you don’t pay the national minimum wage?

What is the UK minimum wage?

Two factors determine the hourly rate for the minimum wage in the UK:

  1. What the employee’s age is.
  2. Whether the employee is an apprentice.

The government sets the rates every year in April, basing their decision on the recommendations of independent advisory group known as the Low Pay Commission.

The latest rate, as of April 2019, stands at £8.21/hour for those aged 25 or over — and this rate is also called the National Living Wage.

For younger workers and apprentices, there are 4 more minimum wages thresholds:

  1. 21-24 years old: £7.70
  2. 18-20 years old: £6.15
  3. Under 18: £4.35
  4. Apprentice: £3.90

Bookkeeping online might help you in case of any dispute with an employee over the wages, and also minimize the risk of any mistakes.

The minimum wage does not apply to everyone

There is a list of occupations that don’t need to meet national minimum wage obligations:

  1. Self-employed, running their own business
  2. Company directors
  3. Volunteers/voluntary workers
  4. Workers on the Work Programme
  5. Members of the armed forces
  6. Workers younger than school leaving age, which stands at 16
  7. Undergraduate students who work as a part of their studies (are on a work placement) for up to 1 year
  8. Those who shadow other employees at work (follow and observe the work of a more experienced employee)
  9. Workers on government pre-apprenticeships schemes
  10. Those under special EU programmes, like Leonardo da Vinci, Erasmus+, Comenius
  11. Those working on a Jobcentre Plus Work trial for up to 6 weeks
  12. Share fishermen
  13. Prisoners
  14. Those living and working in a religious community
  15. The employer’s family members, living in the family home and working in the family business
  16. Non-family members working and living in the employer’s home as part of a family

How is the national minimum wage calculated?

The calculation of the minimum wage is quite a complex process, as it is not just the salary that is taken into account. For example, any benefits in kind an employee gets are not considered in NMW calculations, even if they have a monetary value. However, there are special rules when a worker gets accommodation from you.

Here are the highlights of what is included (or not) in the calculations.

Counted for NMW:

  1. Income Tax and National insurance contributions
  2. Wages advances/loans
  3. Repayment of wage advances/loans
  4. Repayment of overpaid wages
  5. Something the employee paid and that is not needed for the job. Or something paid for voluntarily, like meals.
  6. Penalty charges for an employee’s misconduct

Not counted for NMW:

  1. Payments not made for the employer’s own use or benefit, like if the employer has paid for travel to work
  2. Something the worker bought for the job and is not refunded for (like tools, uniform, safety equipment)
  3. Tips, service charges and cover charges
  4. Extra pay for working unsocial hours on a shift

What records on the national minimum wage to keep?

HRMC expects you to keep records that you pay the minimum wage to your team. There is no particular format you must stick to, though most of the employers use their payroll records for this. The records must be kept for 3 years. HMRC has the right to do checks on your company at any time and ask to see the payment records. Not to miss any deadlines, use our accounting services.

What if you don’t pay the national minimum wage?

Anyone can report such a case to HMRC (HM Revenues & Customs, UK top tax authority), and it can be done anonymously.

HMRC will investigate and fine an employer, who has been reported to violate the law. The maximum fine is £20,000 per worker.

HMRC can also decide to take the case of national minimum wage non-payment to civil court. They can go further and reveal the name of the non-payer to the public and ban the person from being a company director for up to 15 years.

Want to register your UK company online? Get in touch with us and we will assist you.

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