National Minimum Wage (NMW)

22/09/2009

While politicians and experts debate the perceived pros and cons of notional big hitters in the banking sector receiving bonuses, spare a thought for workers at the other end of the pay scale.

Next week the National Minimum Wage (NMW) will rise from £5.73 per hour to £5.80.  Employees aged 18 to 21 will also welcome the 1st October changes as their hourly rate, known as the National Minimum Wage development rate, will rise from £4.77 to £4.83, a 1.3% increase.  Meanwhile, the youth hourly rate - for 16 to 17-year olds - will rise to £3.57 from £3.53.

The government has declared that, from October 2010, workers who are aged 21 will be entitled to the adult rate of the National Minimum Wage.

Launched in 1999, the National Minimum Wage was first set at £3.60 per hour.  It is reviewed each year, and any changes to the rates are applied on 1st October.  This year’s increase is the lowest since the introduction of the National Minimum Wage but, as the Low Pay Commission (LPC) – which makes recommendations on the NMW rate – points out, the UK faces economic challenges.   Employee representatives, who fully appreciate the issues, expect to see a significant increase in 2010.

The majority of employees over school leaving age who work legally in the UK (excluding the Channel Islands and the Isle of Man), are neither self-employed nor voluntary workers, and have a written, oral or implied contract are entitled to be paid at least the National Minimum Wage.

Employers must apply the appropriate National Minimum Wage figure to an employee’s basic wage.  It is prohibited to arrive at the NMW by including money paid to employees for overtime, as a bonus or shift allowance.  Employers who make deductions from employees to cover the cost of items such as corporate work-wear must ensure that the employees still receive at least the NMW following those deductions.

Any contract which cites a rate of remuneration lower than the National Minimum Wage has no legality on the pay front, even if the worker entered into the agreement on a voluntary basis.

Bosses must keep records demonstrating compliance with the National Minimum Wage or risk a fine.  These must be kept for a minimum of three years after the current year’s pay records, although six years may be more sensible as employers can face legal action for failure to pay the National Minimum Wage up to six years after the alleged offence.

The records may be called upon as evidence of compliance in the event of a dispute or if requested for inspection by an HMRC minimum wage compliance officer or indeed by members of the workforce.