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HMRC internal manual

National Minimum Wage Manual

From
HM Revenue & Customs
Updated
, see all updates

National minimum wage rates: “fair” piece rates from 1 October 2004

Relevant legislation

The legislation that applies to this page is as follows:

For pay reference periods commencing

* on or after 6 April 2015; National Minimum Wage Regulations 2015, regulations 41 to 43
* before 6 April 2015; National Minimum Wage Regulations 1999, regulations 24, 25, & 26 

Special rules apply to the rated output work system which was introduced for pay reference periods starting on or after 1 October 2004.

Under this system, employers are required to pay their workers either:

  • the national minimum wage for every hour worked, or
  • a “fair” piece rate for each piece produced or task performed.

“Fair” piece rates

Piece rates are usually paid as an amount per item produced or task performed, regardless of the time taken to do the work. However, the national minimum wage is set as an hourly rate. “Fair” piece rates link the number of items produced or tasks performed to an hourly rate, which allow us to determine whether or not national minimum wage rates have been paid.

To calculate “fair” piece rates (NMWM03140), the time it would take a worker to do a task is assessed in relation to the time it would take an average worker of the same employer to do the same thing. The number of tasks the average worker can perform in an hour is called the average hourly output rate (NMWM03150). The worker is assessed as havingan hourly rate, which is a percentage of the average hourly output rate. This is regardless of the rate at which the worker actually works or the time it actually takes to do the work.

The employer must pay at least a “fair” piece rate per item (or task) to be paying the equivalent of the national minimum wage.

Assessed hourly rates

For Pay Reference Periods starting 1 October 2004 until 5 April 2005 (inclusive)

  • The worker’s assessed hourly rate is 100% of the average hourly output rate. This means the worker is treated as working at the same rate and speed as an average worker doing the same thing. So if it takes an average worker an hour to do a set number of tasks, the worker is assessed as taking an hour to do the same set number of tasks.

For Pay Reference Periods starting on or after 6 April 2005

  • The worker’s assessed hourly rate is calculated by reference to 120% of the average hourly output rate. So if it takes an average worker an hour to produce a set number of items, the worker is regarded as taking 1 hour 12 minutes to do the same thing. Within 1 hour the worker will be assessed as producing fewer items than the average worker.