Parental bereavement leave

In January, the Government confirmed the date that parental bereavement leave would be introduced as 6 April 2020.

This new leave applies to all parents who suffer the loss of a child under the age of 18, or a stillbirth after 24 weeks of pregnancy and will allow them to take up to two weeks of leave. Bereaved parents will have 56 weeks from the date of the death in which to take their leave, which can be taken in blocks of one or two weeks.

For employees who have worked at a company for 26 weeks or over, they may also be entitled to statutory parental bereavement pay. This will be £151.20 per week from April 2020.

Agency workers

Agency workers are to receive a number of additional rights from 6 April 2020, including a Key Information Document setting out the terms they can expect to apply to their assignment.

Agency workers have the legal right to receive equal pay, and treatment, to full-time employees after they have been assigned to an end-user (the company they are currently working for) for 12 weeks. However, under Swedish derogation arrangements, they are not able to receive this right as the agency pays them between assignments.

From April, Swedish derogation contracts must cease to exist from 6 April 2020. Any workers who are currently on them will also need to be provided with a written statement by no later than 30 April 2020 confirming this.

Holiday pay reference periods

Calculating holiday pay for flexible workers, or those who work differing hours from week to week, can be difficult. Up until now, the rule was to take their average weekly earnings over the previous 12 weeks and pay time off in accordance with this.

From 6 April, this is to be extended to 52 weeks and the idea is to make the process fairer and ensure that workers in this position are getting their full entitlement to holiday pay.

Contracts (SMTs)

Currently, every employee reserves the right to receive a statement of written particulars within two months of starting their employment. This gives them key information regarding their role, such as pay, hours, holiday entitlements, etc.

From 6 April 2020, each employee must be given this on day one of their employment. Individuals classed as workers will also have the right to receive a written statement outlining the same information.

2020 going forward

With the coronavirus being the hot topic at the moment, it remains to be seen what further changes we will see as the year goes on. A big area that was expected to dominate headlines was Brexit, and currently there are no plans to extend the current transitional period past the 31 December date. However, this could also be subject to change going forward following the current pandemic.

Last reviewed 1 April 2020

 

Summary

The National Minimum Wage (NMW) is set by the Government and is subject to periodical revisions. The rates are now generally updated from 1 April each year. There are four levels of the NMW for workers in different age groups plus a further rate applicable to some apprentices. The highest of these rates is also known as the National Living Wage. The rates all apply to gross pay.

The NMW applies to most workers over the age of 16, but not to people who are genuinely self-employed.

This topic explains how employers should determine the NMW, advises how to keep records and the consequences of not doing so and also explains the provision of living accommodation in relation to the NMW.

In Practice

Current Rates

The National Minimum Wage (NMW) requires that employers pay workers a minimum hourly gross rate of pay. This covers most workers over the age of 16. The self-employed, certain company directors, specified vocations and certain other workers are excluded. Employers cannot opt out of the legislation.

The NMW is set by the Government and adjusted based on inflation and other economic conditions in April each year.

An employer cannot use the fact that an employee has, due to age, entered a higher pay band under the NMW as a reason for dismissing him or her. Any such dismissal will be automatically unfair and the employee does not need to have any minimum period of continuous service in order to bring a claim of this type to an employment tribunal.

The following rates apply as from 1 April 2019.

Note:

These apply to workers’ gross pay.

Category	Rate
Workers aged 25 and over (known as the National Living Wage (NLW)	£8.21 per hour
Workers aged 21–24	£7.70 per hour
Workers aged 18–20	£6.15 per hour
Workers aged 16–17	£4.35 per hour
Apprentices (those under the age of 19 and older apprentices in the first year of their apprenticeship)	£3.90 per hour

There is an accommodation offset rate which is the maximum amount that an employer can deduct from an employee’s wage where the employer provides the worker with accommodation — see below.

Rates from 1 April 2020

The following rates apply as from 1 April 2020.

Note:

These apply to workers’ gross pay.

Category	Rate
Workers aged 25 and over (known as the National Living Wage (NLW)	£8.72 per hour
Workers aged 21–24	£8.20 per hour
Workers aged 18–20	£6.45 per hour
Workers aged 16–17	£4.55 per hour
Apprentices (those under the age of 19 and older apprentices in the first year of their apprenticeship)	£4.15 per hour

There is an accommodation offset rate which is the maximum amount that an employer can deduct from an employee’s wage where the employer provides the worker with accommodation — see below.

Categories of Worker and Exemptions

The following categories of workers fall within the scope of the NMW legislation.

• Agency workers.
• Agricultural workers.
• Commission workers.
• Home workers.
• Pieceworkers.
• Offshore workers in UK territorial waters.
• Workers usually employed in the UK but temporarily working overseas.
• Legally employed workers from outside the UK.
• Seafarers.
• Part-time workers.
• Workers on short-term contracts.

Entitlement to the NMW excludes:

• company directors (unless they have an employment contract)
• people who are genuinely self-employed
• workers under 16-years-old, where permits are required from the local education authority
• students on vocational experience
• trainee teachers on work experience
• trainees on Government-funded accredited training courses lasting at least 26 days over a six-month period
• participants in programmes supported by the European Social Fund and certain European Community programmes
• members of the armed forces (regulars and reservists on duty)
• fishermen operating on a profit-share basis
• the unemployed
• prisoners
• homeless people working to receive shelter
• family, friends, neighbours or others working at home (e.g. au pairs, nannies or formal companions)
• residential members of religious communities
• cadet force adult volunteers
• voluntary workers who offer their services on an unpaid basis.

Exemptions apply to the following categories of person on work experience.

• Students doing work experience as part of a course (but not those on a gap year).
• Persons of compulsory school age on work experience.
• Voluntary workers.
• Participants in certain Government and European programmes for work done as part of the programme.

What Hours are Counted?

Times that are counted for the purpose of entitlement to the NMW include the following.

• Time spent at work “at the disposal of the employer”, including waiting and stoppage time.
• Travelling time on company business during working hours, e.g. to a different place of work, including waiting time for the transport to arrive and spare time after the journey before actually starting work.
• Training time at the normal place of work or away from the normal place of work and the time taken to travel to the training location.
• Standby time when the worker has been called out.

Times that are not counted include:

• rest periods during working hours
• lunch breaks
• holidays
• sickness absence
• maternity, paternity, adoption or shared parental leave
• in some cases, times when the worker is permitted to sleep between duties
• time spent on strike or taking other industrial action
• time spent travelling from home to the normal workplace
• lay-off or short-time working, depending on the contractual arrangements.

The Pay Reference Period

The pay reference period is defined as a month or, in the case of a worker who is paid wages by reference to a shorter period (e.g. weekly or daily), that shorter period. The purpose of this period is to allow for some flexibility in calculating the pay of workers whose pay is variable, thus avoiding the need to pay the minimum wage for each and every hour worked. The pay reference period cannot be longer than one calendar month.

What does Pay Include?

The regulations are specific about what can be included or deducted from pay counting towards the total paid for the purposes of the NMW. The principles are as follows.

• Pay must be related to the specific pay reference period. Special provisions apply to irregular pay earned in one pay reference period but not paid until a later pay reference period, e.g. bonuses, overtime, commission, etc.
• Pay cannot be deferred by more than one pay reference period. This means, for example, that annual bonuses cannot be spread over the whole year for NMW purposes.
• Pay relates to formal pay corresponding to a timesheet.

Payments excluded from gross pay include:

• loans
• advances of wages
• pension payments
• lump sums on retirement
• redundancy payments
• rewards under a staff suggestion scheme.

Additional elements that do not count as pay for the purposes of the NMW are:

• overtime and shift premia
• allowances that are not consolidated into pay
• reimbursed expenses
• deductions or payments for tools, uniform, etc
• tips, gratuities, cover charges and service charges, however paid (Annabel’s (Berkeley Square) Ltd v HMRC [2009] EWCA Civ 361).
• accommodation above a certain limit
• deductible travel and subsistence expenses.

Payments that are not excluded (and so do count towards the NMW) include:

• incentive pay
• bonuses
• deduction or payment:

• • of a penalty
  • to repay a loan
  • to repay an advance of wages
  • to pay for purchase of shares or securities
  • to refund accidental overpayment of wages.
• union subscriptions
• workers’ pension contributions
• any deduction made by the employer that is not for its own use or benefit
• unforced payments by the worker for goods and services from the employer
• accommodation up to the permitted limit.

Hourly Rate of Pay

The hourly rate of pay for the pay reference period is the employee’s gross pay divided by the eligible working hours.

Underpayment of the National Minimum Wage and Calculation of Arrears

Arrears of the NMW for a pay reference period are calculated as follows.

• Multiply the rate in force during the period of the underpayment by the hours worked.
• Deduct the amount actually paid.
• Divide the resulting underpayment by the minimum wage rate that applied at the time of the underpayment.
• Multiply the result by the current rate of the NMW.

The result is the arrears due for the pay reference period.

Keeping Records

An employer must keep sufficient records to show that workers have been paid at least the NMW. An employer must also keep a copy of:

• any agreement for a worker to receive accredited training
• the notice that the employer has given to an output worker (see below) and a copy of the data showing how the employer calculated the mean hourly output rate and the rate to be paid to the output worker for the production of a single item or the performance of a single task
• an “average hours” agreement for workers whose working time is “unmeasured” (see below).

Records must be kept by the employer for three years (and possibly six years in order to defend against civil claims), starting with the day on which the relevant pay reference period ends. In the event of a dispute, the onus is on the employer to prove that the minimum wage has been paid.

Access to National Minimum Wage Records

A worker has the right to access his or her NMW records if he or she reasonably believes that he or she is, may be or has been paid at a rate below the NMW for any pay reference period. The right is to inspect, examine and copy any part of those records.

The worker’s right to access his or her NMW records may be exercised by the worker himself or herself or by the worker accompanied by a person whom the worker considers fit to do so.

A worker who wishes to exercise his or her right to access the NMW records must give a “production notice” to the employer that requests access to particular records which relate to a certain period. Where a worker intends to be accompanied, the production notice must contain a statement of that intention.

Where the employer receives a production notice from a worker, the employer must give the worker reasonable notice of the place and time at which he or she will be given access to the requested NMW records.

The place at which a worker can be given access to the requested records can be:

• the worker’s place of work
• any other place at which it is reasonable in all circumstances for the worker to attend to inspect the requested records
• such other place as may be agreed between the worker and the employer.

An employer must allow the worker to have access to the requested records within 14 days following the date of receipt of the production notice or at such later time as may be agreed during that period between the worker and the employer.

It would be prudent for such an agreement to be in writing, bearing in mind the penalties for an employer that fails to give a worker access to requested NMW records within the 14-day time limit or the agreed time limit (see below).

The employer must also produce records when requested to do so by an HM Revenue & Customs (HMRC) officer.

How is Working Time Measured?

The four types of work arrangement are the following.

1. Time work.
2. Output work.
3. Salaried work.
4. Unmeasured work.

Each of these is examined below.

Time work

Time work is generally work that is paid for under a worker’s contract by reference to the number of hours he or she works (e.g. per day, week, month, etc). The time work worked by the worker in any pay reference period is the total number of hours’ work done by the worker in the reference period.

In addition to the time that the worker is working, time work also includes time when a worker is available for work at or near the place of work and is required to be available for this purpose. This does not, however, include time that the worker is entitled to spend at home where his or her home is at or near the place of work, or time when a worker who sleeps on the premises is asleep, having been provided with suitable facilities for sleeping by the employer.

Recent case law has, however, shown that sleeping time on the employer’s premises may count as time worked, depending on the circumstances. Generally, workers whose core duties require them to work during the night may be entitled to have the whole period counted as working time for the purpose of the NMW irrespective of whether they are actually called upon to do any work. In contrast, workers who are required to be on call in addition to their core hours will generally be entitled to be paid the NMW only in respect of time spent awake for the purpose of working (and not any time spent asleep). Note, however, that this matter can be a grey area and various court decisions have reached different conclusions.

Time work also includes time when a worker is travelling for the purposes of his or her duties, though not where the travel is incidental to the work, is not part of any assignment and is time when the worker would not otherwise be working, nor where the travel is between the worker’s normal place of residence and place of work.

Time work excludes time when a worker is absent from work, including rest periods, and periods when he or she is engaging in industrial action.

Output Work

Output work is paid according to the number of items that a worker produces or the number of sales or deals that he or she makes. This is commonly known as “piecework” or “commission work”.

The employer will need to identify the number of hours worked by workers performing a particular type of work. There are two options.

1. Coming to a “fair piece rate” agreement (called “rated output work”).
2. Paying the NMW for every hour actually worked.

If there is a “fair piece rate” agreement, it must:

• be agreed between the worker and employer
• be made before the start of the pay reference period to which it relates. If the work is paid daily, the agreement must apply to each day, and if the worker is paid weekly, to each week
• be in writing
• set a fair estimate of the number of hours the worker is likely to work in the pay reference period
• require the worker to keep a record of actual hours worked and to give it to the employer as soon as possible after the end of the reference period
• be supported by a contract between the worker and employer that sets the agreed piece rate.

The conditions applicable to output work are, first, that the workers in question must not have any fixed hours of work. Thereafter, the employer must have:

• determined the average number of pieces that can be produced in an hour by carrying out an appropriate and fair test of a representative sample of the workforce
• given output workers a written notice setting out their entitlements under the rated output work system.

Once the average hourly output rate has been established, the employer must then pay the worker a “fair piece rate” for each item produced or processed.

In order to establish whether a worker is receiving the minimum wage under this arrangement, the employer must calculate the number of hours that the worker is deemed to have worked. The worker’s deemed hours are calculated as follows.

• The employer must calculate — by carrying out a fair test — the number of hours that an average worker takes to produce a pre-determined number of items.
• This number must be multiplied by 120% in order to establish the “deemed number” of hours.
• The wages paid to the worker must be calculated by multiplying this deemed number of hours by the NMW, and dividing the resultant number by the number of items previously identified.

Salaried Work and Annual Hours Contracts

Salaried work applies to workers who are paid a contracted annual salary evenly throughout the year, or for a specified number of annual working hours.

Hours worked in excess of the contracted basic hours must be included in any calculation. This can have significant impact on employees who are paid a fixed monthly salary and who work extensive (unpaid) overtime — as the unpaid additional hours have to be factored into the calculation.

Unmeasured Work

Unmeasured work is where a worker is generally available all or much of the time but is not necessarily actually carrying out duties. Examples include wardens, pub managers and care workers. The rule is that if work does not fit the other three categories, the “unmeasured work time” category applies. The employee’s time actually worked is difficult to measure, but there are two options.

1. Record the actual total hours worked.
2. Make a written agreement before the pay period starts that sets out the daily average number of hours.

Reductions and Deductions

Deductions made from an employee’s pay reduce the amount of pay that counts towards the NMW if the deduction is in respect of the worker’s expenditure in connection with the employment. This provides additional protection for the employee. Care must be taken where an employee’s pay is at or just above the applicable rate of the NMW as making deductions will reduce the employee’s pay and may take it below the minimum legal level.

Where the employer provides services, such as meals, and makes a deduction from the employee’s pay only to cover the cost of providing the service, the deduction reduces the employee’s NMW pay. It does not matter whether the employer makes a profit, whether the deduction is made from gross or net pay or whether the worker benefits from the arrangement. The same applies in respect of deductions made for uniforms, laundry, etc.

However, if the employer makes a deduction which is passed straight on to a third party, for example to meet the worker’s own liability to pay for a public transport travel ticket, the employee’s pay is not deemed to be reduced. This is because the deduction is not in respect of expenditure in connection with the employment. However, if the employer charges an administration charge for handling the transaction, the administration charge will reduce the employee’s pay for the purposes of the NMW.

The position is more complicated where the workers agree to the deduction being made. The legislation does not have a definition of “voluntary deduction” nor does it recognise the concept. This means that each deduction must be considered on its merits.

The legislation is designed to protect vulnerable workers and cannot be circumvented by employers making arrangements with workers.

Provision of Living Accommodation

Living accommodation is the only benefit in kind that can count towards the minimum wage that a worker receives.

However, the amount that an employer providing accommodation can count towards the NMW is limited. This limit is referred to as the “accommodation offset”.

From 1 April 2019, the accommodation offset is £7.55 per day for each day that the employer makes the accommodation available to the worker. The maximum amount that can count towards the NMW in respect of the provision of living accommodation is therefore £52.85 per week (i.e. £7.55 x 7).The accommodation offset rates will increase to £8.20 per day and a weekly maximum of £57.40 from 1 April 2020.

If an employer makes any further deductions from the NMW in respect of the accommodation they provide, such as the cost of gas and/or electricity provision, the extra charge will reduce the employee’s pay for the purposes of the NMW.

Enforcement Provisions

HMRC is responsible for enforcing payment of the NMW. Inspectors can require access to records and are entitled to conduct interviews with employees.

The powers of inspectors include the right to require information and examine records, to remove records from the employer’s premises for photocopying, to serve enforcement and penalty notices on an employer, to issue proceedings in the employment tribunals and in the civil courts on behalf of workers, and to bring criminal prosecutions.

Automatic penalties apply in cases of underpayment (see below). The more serious offences can be tried in the Crown Court, rendering the employer liable to a potentially unlimited fine.

There are six criminal offences, each with potential unlimited fines.

1. Refusal or wilful neglect to pay the NMW.
2. Failure to keep records.
3. Keeping false records.
4. Producing false records or information.
5. Intentional obstruction of an enforcement officer.
6. Refusing or neglecting to give information to an enforcement officer.

Underpayment of the National Minimum Wage

Where a worker is paid less than the NMW by the employer, he or she has the right to claim the difference between the amount he or she has received and the amount that should have been paid to him or her. Arrears can be claimed for the past six years (five years in Scotland). Alternatively, the worker may sue for breach of contract in the county court (Sheriff Court in Scotland) or, where the employment has ended, in the employment tribunal.

In civil cases, the burden of proof is on the employer. It is therefore up to the employer to satisfy a court or tribunal that a worker making a claim has been paid the minimum wage, or else that he or she is genuinely self-employed and so not entitled to the NMW.

A worker who succeeds in his or her claim is entitled to have the arrears repaid at the rate of the NMW in force at the time of the determination of his or her claim, instead of the rate applicable at the time of the payment shortfall.

Penalties

An automatic penalty is levied on employers who are found by HMRC officers to owe arrears of the NMW. Any penalty must be paid in addition to the arrears owed to worker(s).

Penalties levied range from £100 to a maximum of £20,000. The penalty is set at 200% of the arrears.

The maximum penalty of £20,000 for failing to pay the NMW can apply in respect of each underpaid worker rather than being the total penalty irrespective of the number of employees who were underpaid by the employer.

If the employer complies with a penalty notice within 14 days, the penalty stands to be reduced by 50%.

Enforcement of Rights of Access

Where an employer has failed to permit access to records, the worker may present a complaint to an employment tribunal. Such a complaint must be presented within three months following the end of the 14-day period (or later agreed date) within which the employer must produce the records after the serving of a production notice. The tribunal has a discretion to extend the time limit if it is satisfied that it was not reasonably practicable for the worker to have presented the complaint within the three-month period.

Where an employment tribunal finds a complaint well-founded, it must make a declaration to that effect and award compensation equal to 80 times the hourly amount of the NMW in force when the award is made.

The above penalties will also be applicable where the employer does not allow a worker who wishes it to be accompanied when he or she accesses records.

Unfair Dismissal and the Right to Not Suffer a Detriment

Employees (regardless of their length of service) have a right not to be unfairly dismissed on the grounds that the:

• employee took any action, or proposed to take action, with a view to enforcing his or her rights under the relevant legislation
• employer was prosecuted for an offence under the National Minimum Wage Act 1998 as a result of action taken by (or on behalf of) the employee for the purpose of enforcing his or her rights
• employee (due to his or her age) qualifies, or will qualify, for a higher rate of the NMW.

Workers also have the right not to suffer a detriment by any act/omission of the employer on any of the above grounds.

Complaints of this nature must be lodged with the employment tribunal within three months of the dismissal or detriment.

Naming and Shaming

A scheme to name employers who fail to pay the NMW was introduced in October 2011 (and revised in October 2013). HMRC will refer the employer to the Department for Business, Energy and Industrial Strategy (BEIS) for automatic naming under the scheme. The employer has a window of 14 days in which to make representations as to why it should not be named. If representations are not received or the representations are not accepted, the employer will be automatically named in a BEIS press notice.

List of Relevant Legislation

• Equality Act 2010
• Employment Act 2008
• National Minimum Wage (Enforcement Notices) Act 2003
• National Minimum Wage Act 1998
• National Minimum Wage Regulations 2015 (as amended)
• Working Time Regulations 1998

List of Relevant Cases

• City of Edinburgh Council v Lauder [2012] UKEAT/0048/11
• MacCartney v Oversley House Management EAT 0500/05
• Scottbridge Construction Ltd v Wright [2003] IRLR 21
• British Nursing Association v Inland Revenue National Minimum Wage Compliance Team [2002] IRLR 480

Further Information

Organisations

• Business Support

https://www.gov.uk/business-support-helpline

The Business Support Government helpline has regional offices.

• Department for International Trade (DIT)

https://www.gov.uk/government/organisations/department-for-international-trade

DIT is responsible for developing and delivering UK industrial strategy, promoting competitive markets and ensuring that the UK has a reliable, low-cost and clean energy system.

• HM Revenue & Customs (HMRC)

https://www.gov.uk/government/organisations/hm-revenue-customs

HMRC is the UK’s tax, payment and customs authority responsible for revenue collection.

• Low Pay Commission (LPC)

http://www.lowpay.gov.uk

The LPC was established as a result of the National Minimum Wage Act 1998 to advise the Government about the National Minimum Wage and assists employees and employers alike with advice.