Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

National Minimum Wage Manual

From
HM Revenue & Customs
Updated
, see all updates

Pay reference periods & elements of pay: loan or advance of wages

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 10(a) & 12(2)(b)
* before 6 April 2015; National Minimum Wage Regulations 1999 regulations 8(a), 33(b) & 35(b)

Any payment by way of an advance under an agreement for a loan, or by way of an advance of wages, does not count towards a worker’s total remuneration for national minimum wage purposes and is therefore excluded from the calculation of national minimum wage pay (NMWM09050).

To ensure that the payment and repayment of a loan is treated correctly for national minimum wage purposes, an amount should not be treated as a loan unless there is supporting documentation covering the terms of the agreement and confirmation has been obtained that the worker has actually received the monetary amount, to spend as he pleases. In particular, an employer cannot simply buy goods or services, such as transport, for the worker (whether with the agreement of the worker or not) and then claim to have provided the worker with a loan to cover the amount involved.

However, a worker may ask the employer for a loan and then request that it is paid to a third party on their behalf. Provided documents support this, the payment will be considered to be a loan made to the worker. For example; a worker applies for a loan to purchase an annual travel ticket, the relevant documentation is completed and the employer makes the payment to the travel company on behalf of the worker.

Similarly an advance of pay must be given to the worker as a monetary amount leaving the worker free to decide on how and when to spend it. If these conditions are not met, then the worker is not regarded as having received an advance of pay for national minimum wage purposes.

An advance of pay for Christmas or holiday, is treated exactly the same as outlined above.

Care must always be taken to confirm that:

  • There is no requirement imposed on the worker by the employer to apply for such a loan
  • The amount of loan or advance of pay is available to the worker, in cash (not vouchers or goods), to spend as he sees fit, and
  • any loan or advance of pay is fully documented (eg:- a loan agreement, repayment terms, entry in payroll records)

For example, a worker requests a cash advance of £50 in November as well as his monthly pay of £600. The advance is added to his pay and he receives £650. His national minimum wage pay is £600 as the cash advance does not count towards the worker’s total remuneration in November.

For the treatment of Repayments of Advances of Pay and Loans, made by the Worker to the Employer, see (NMWM11150). If there are any additional separate charges imposed on the worker for the provision of a loan it will be appropriate to consider whether the charge is for the employer’s use and benefit or not, see (NMWM11130).