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HMRC internal manual

National Minimum Wage Manual

From
HM Revenue & Customs
Updated
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National minimum wage rates: calculating “fair” piece rates

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 & 26A

For pay reference periods starting on or after 1 October 2004, special rules apply to the rated output work system (NMWM07080). Under that system, employers can decide to pay a “fair” piece rate for every piece produced or task performed (rather than pay at least national minimum wage for every hour worked) (NMWM03150).

“Fair” piece rates (NMWM03130) are calculated with reference to:

  • the average hourly output rate of an average worker (NMWM03150), and
  • the worker’s assessed hourly rate (NMWM03130) and
  • the worker’s national minimum wage rate (NMWM03010).

Calculating a “fair” piece rate

To calculate a “fair” piece rate divide the worker’s national minimum wage hourly rate by the average hourly output rate for the piece or task.

If the pay reference period starts on or after 6 April 2005, multiply the result by 1.2. (This produces a result that is the equivalent of calculating by reference to the worker’s assessed hourly rate (i.e. 120% of the average hourly output rate.)

“Fair” piece rates must be re-calculated whenever national minimum wage rates change.

Examples

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

The worker is entitled to national minimum wage at the main rate (then £4.85)

* The employer tells you the average hourly output rate = 10 items per hour
* The “fair” piece rate is £4.85 divided by 10 = £0.485 per item 

Pay Reference Periods starting on or after 6 April 2005 

The worker is entitled to national minimum wage at the main rate (here £5.05)

* The employer tells you the average hourly output rate = 10 items per hour 
* The “fair” piece rate is £5.05 divided by 10 multiplied by 1.2 = £0.606 per item 

Although not specifically shown in the calculation above, the assessed hourly rate in this example is 8.33 items, (120% of the average hourly output rate, 10 divided by 1.2)