National Living Wage – Have you got it right?
The minimum hourly rate is published annually by the government and takes effect from 1 April each year. The amount an individual is paid is determined by both their age and their type of employment. For most people, that is as far as the thought process goes.
As of 1 April 2020, the hourly pay scales are shown below:
To be clear from the outset, the above pay scales are the minimum hourly wage payable to all employees and workers, including part-time, flexible, agency workers and those on zero hours contracts. The government does, however, now refer to the minimum wage for those twenty-five and over as the ‘National Living Wage’. For the other bands, the term ‘Minimum Wage’ still applies.
As an aside, the actual ‘Living Wage’ is something completely different to the government’s coined term ‘National Living Wage’. The living wage is calculated independently and is used as a benchmark to determine what the hourly rate would need to be to improve living standards. It is currently £9.30, so the national living wage has some way to go – somewhat confusing really.
Now that we have established the hourly rate payable and to whom it applies, we can now address some areas which may cause confusion and possible compliance failures.
How you determine minimum wage
In assessing whether an employee has been paid at least minimum wage, it is the gross money payments that are considered against the hours worked. Benefits in-kind should be stripped out as a noncash payment, even for salary sacrifice arrangements. Therefore, if an employee chooses to receive a benefit in-lieu of cash, this cannot reduce the revised hourly rate below that stated hourly minimum, discussed above.
Time spent in connection with travelling to and from your place of work is usually unpaid time as it is unlikely to form part of your contractual working hours. Time spent travelling in the course of your employment is working time (‘time work’) and therefore the minimum rates of pay apply. If, for example, you are required to travel to different sites to perform work duties, time spent travelling between sites is payable (no reduced rates or alike should apply). Travel time can become a grey area though, and time spent on ordinary commuting does not have to be taken into account.
The national minimum wage regulations 2015 (Reg. 34) states: hours treated as hours when the worker would “otherwise be working” include— hours when the worker is travelling for the purpose of carrying out assignments to be carried out at different places between which the worker is obliged to travel, and which are not places occupied by the employer. Again, the key here is what the contract states as to when the employee is deemed to start work and the place to be attended.
If you are not paying employees for travel time (or at a reduced rate), professional advice should be sought to confirm everything is in order.
There will be occasions whereby the employer will levy deductions against the employee’s pay. In making such deductions there will be the potential of reducing the employee’s pay below the national minimum wage when reviewing the average hourly rate. Where deductions are mandated by the employer for the proper performance of work (say safety clothing and equipment) this will reduce national minimum wage pay. Where a deduction is applied to an employee’s wage for misconduct, repayment of wage advances and overpayments, these do not reduce national minimum wage pay.
The key to ensuring the correct treatment of the above-mentioned payments is to understand the nature of the transaction and to differentiate between payments a worker makes to the employer and deductions an employer makes from the worker.
A casual worker is someone not part of the business’ permanent workforce, but one who provides their services on an irregular basis to meet the business’ needs. This type of worker will, on occasion, be seen as young, inexperienced or in transient situation. It may also be the case that the business may offer work on a piece work basis (i.e. a fixed amount agreed upfront for a certain job/task to be completed). If the working relationship is casual in nature and there is no formal written contract, the minimum wage rules still apply. As to whether the worker is an employee or self-employed person is a matter for another article – but worth consideration nonetheless.
The reason for raising attention to this subject matter is we are seeing more PAYE compliance checks that are specifically focusing on this area. Employers who are found to be underpaying staff can be subjected to some fairly onerous penalties, and HMRC compliance officers may carry out inspections of the employer at any time and without warning. For this reason we would urge you to make sure you have got it right and are not unknowingly underpaying anyone.
If you have any further questions on the subject you can call us on 01243 782 423 or complete our contact form and we’ll be in touch!