There are many terms, rates and situations that need to be understood when considering if the rate of pay for an employee meets the HMRC minimum wage regulations.
It is important for all employers to ensure they are meeting these requirements as the repercussions for not meeting them can be severe!
There is also potential for the employee/employer relationship to suffer if things aren’t put in place correctly. This means there are business consequences, as well as financial. Below, we look at the important points to consider when understanding minimum wage.
National Minimum Wage – the minimum hourly rate an employee is due who is older than school leaving age (the last Friday in June of the school year they turn 16).
National Living Wage – the National Minimum Wage for employees aged 25 and over.
Apprentice – someone who is in a training contract aged under 19 or aged 19 or over and in the first year of their apprenticeship.
Rates – from April 2019
Apprentice – £3.90
Under 18 – £4.35
18 – 20 – £6.15
21 – 24 – £7.70
25 and over – £8.21
The above rates and terminology are fine to implement when someone is paid based on the hours they work each week/month.
However, if someone is on a salary that is paid monthly, and that salary is close to the minimum wage, there is another layer involved when it comes to understanding minimum wage. Employers need to ensure they are being paid the correct wage for every month.
If an employee works 7 hours a day, 5 days a week, is aged 25 and gets paid on the last day of each month, you might think that their minimum salary could be £14,942.04 (£8.21 x 35 hours x 52 weeks). This would mean they would be paid £1,245.17 per month.
But, October has 23 working days in 2019. £1,245.17 / 23 days / 7 hours = £7.73, so this fails the minimum wage test.
The minimum salary would actually be £15,861.72 (23 days x 7 hours x £8.21 x 12 months) or £1,321.81. It has to be based on the month with the most working days. This results in a whopping £919.68 difference per annum!
The only way to get around this is to vary the gross pay each month depending on the number of working days in that month. As you can imagine, this isn’t always the best result for the employee!
Employees can use this tool to check they are being paid correctly: https://www.gov.uk/am-i-getting-minimum-wage
There are some instances when minimum wage regulations do not apply – please get in touch if you need to know more about this.