Most people at work are entitled to be paid at least the National Minimum Wage (NMW), provided they are aged 16 years or over. This includes:
- agency workers
- homeworkers and
- migrant workers who are working lawfully in the UK.
For more information on the groups of workers who qualify for the NMW please take a closer look at the TUC 'Enforcing Basic Workplace Rights' guide.
Groups who are not entitled to be paid at least the NMW include:
- Self-employed (see employment status section)
- Voluntary workers working for a charity, voluntary organisation or Government agency (See see the special NMW rules for voluntary workers)
- People who are either a member of the employer’s family or live in the employer’s home and treated like a member of the family, for example by sharing household chores and leisure activities.
- People living in a religious or other community
- Individuals undertaking work experience as part of a further or higher education course
- Individuals employed on Government employment programmes
- Members of the armed forces
- Share fishermen
For more information on who qualifies for the NMW please take a closer look at the 'Enforcing Basic Workplace Rights' TUC guide.
NB you cannot contract out of the NMW, by agreeing with your employer in writing or orally that you will not be paid the NMW. Such an agreement will be void and not effective. You will still have the right to be paid the NMW.
The NMW rate which applies will depend on your age and whether you an apprentice.
For information on the current NMW rates, please see the link below:
Calculating the NMW
When checking whether you are being paid the NMW, you will need to be aware of:
- your pay reference period
- the forms of pay which count towards the NMW and
- the hours of work for which the NMW must be paid.
This guide provides only basic advice. As the rules for calculating the NMW are complicated you may want to seek advice from your union rep or the Pay and Work Rights Helpline if you are not sure if you are being paid the NMW.
Pay reference period
The NMW is set at an hourly rate but that does not mean you must be paid at least the NMW for each hour that you work. Rather your average hourly pay must be at least the NMW, as worked out over the 'pay reference period'. The pay reference period is the interval between which you are normally paid. If you are normally paid on a daily basis your pay reference period is one day; if you paid weekly it will be one week and if you are paid monthly, it will be one month.
Your pay reference period cannot be longer than one month. If you are normally paid quarterly, you have a right to be paid at least the NMW on average during each month within that quarter.
Most people can easily work out whether they are getting the NMW by dividing their pay (before tax and other permitted deductions - see below) by the number of hours worked.
Pay that counts towards NMW
Next you must work out which forms of pay count towards NMW pay.
The basic calculation to check whether you are being paid the NMW for a pay reference period is
Total pay - deductions and payments which do not count to the NMW = NMW pay
Your NMW pay is calculated on your 'gross pay' paid during the pay reference period.
Your gross pay includes:
- Your basic rate of pay
- Any bonuses, sales commission, and incentive payments and
- Performance related pay
Deductions from your NMW pay
Your employer can only make deductions from your pay if certain conditions are met. Before making any deductions from your pay your employer must comply both with general rules on lawful deductions (see below) and NMW rules on deductions outlined in this section.
Deductions which 'count' towards your NMW pay
Certain deductions which your employer can make from your gross pay will also 'count' towards your NMW pay.
- Deductions which 'count' towards your NMW payments include deductions which:
- your employer is legally required to make including:
- income tax
- national insurance and
- student loan payments
- relate to repayment of advances in wages
- relate to penalties for misconduct - as long as such deductions are permitted by your contract you agree should be made from your pay including:
- Pensions contributions
- Trade union subscriptions
- Deductions for living accommodation which is no more than the accommodation off-set (see more information below).
When checking whether you have received the NMW you should add these deductions to your take home pay then calculate whether you have received the NMW.
Payments which 'count' towards your NMW pay
If you choose to buy goods and services from your employer which are not connected with your employment - for example buying food and drink from a staff canteen - such payments can also 'count' towards your NMW pay.
This however will not include any payments for goods or services which you need to be able to do your job or which you are required to purchase under your contract.
Deductions which 'do not count' towards your NMW pay
Certain deductions and payments do not count towards your NMW pay.
These include deductions and payments made by your employer for:
- Tools, uniforms, etc which your employer supplies and which you need to do your job
- Expenses paid to you for costs incurred during your employment
- Goods and services connected to your employment which your employer retains for their own use and benefit. This will include payments or deductions for uniforms or the use of transport to and from work. It makes no difference that you have an option whether to buy the uniform or to use the service or whether employer does not make a profit from providing the good or service.
When checking whether you have received the NMW you should subtract these deductions from your gross pay and then calculate whether you have received the NMW.
It is unlawful for employers to make such deductions or to require you to make such payments if it means you do not receive the NMW. This is the case even if you have agreed in writing to such deductions or payments or they are referred to in your contract.
Pay that 'does not count' towards the NMW
Some forms of pay do not count towards your NMW pay. You should deduct these forms of pay from your total pay when checkingwhether you have been paid at least the NMW.
Forms of pay which do not count towards the NMW include:
- Any tips or gratuities (thanks to union campaigns, since 2009 employers have not been able to count any tips you receive from customers towards your NMW payments)
- Any premium rate of pay which you receive on top of basic rate for working at special times, e.g. overtime rates or bank holiday premiums
- Attendance allowances
- Any allowances which you receive for:
- working unsocial hours (e.g. night shift allowances),
- working in particular location (e.g. London weighting) or
- doing dangerous work (e.g. at risk payments) or
- doing work beyond your normal duties
- Advances of wages for work not yet done
- Loans from your employer, e.g. travel loans
- Redundancy payments
- Pension payments
- Retirement lump sums
Benefits in kind
Benefits in kind are anything your employer provides you other than pay. There is nothing to stop an employer from providing benefits in kind. But benefits in kind (or their equivalent value in money) cannot count towards your NMW pay. The only exception is a set amount for accommodation (see below).
Examples of benefits in kind which do not count towards your NMW pay are:
- A car or fuel
- Medical insurance
- Subsidised gym membership
- Lunch vouchers
- Childcare vouchers
- Eye test vouchers
- Contributions by your employer towards a pension.
Calculating your NMW pay if you receive accommodation from your employer
If your employer provides you with accommodation, they can count some of the cost of the accommodation towards your NMW pay. This is called the accommodation offset.
The accommodation offset is capped by the law. For information about the current limit for the accommodation offset please follow this link: http://www.direct.gov.uk/en/Employment/Employees/TheNationalMinimumWage/DG_175108
It makes no difference if:
- Your employer provides the accommodation for free
- Your employer deducts rent from your wages or salary
- You pay rent to your employer after you have been paid
- Your employer provides you with accommodation as part of a package of pay and conditions
- You had an option whether to use the accommodation or not.
Once you choose to occupy the accommodation, the maximum amount your employer can 'count' towards your NMW payments for rent is the accommodation offset.
Your employer can charge more rent than the accommodation offset. However they must ensure that you receive NMW payments after you have paid any rent over and above the accommodation offset.
What counts as providing accommodation?
In addition to the accommodation itself, any charges you have to pay your employer for gas, electricity, water bills, cleaning, laundry and the provision of furniture are included in the rent for the purposes of the accommodation offset.
If someone other than your employer provides the accommodation, but there is a connection between your employer and your landlord, your employer will still be treated as providing you with the accommodation under NMW rules.
For information about your rights if you work for a social housing provider (such as a local authority or a registered social landlord), please follow this link: http://www.direct.gov.uk/en/Employment/Employees/TheNationalMinimumWage/DG_175108
Issued: 21 July, 2011