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HMRC internal manual

National Minimum Wage Manual

Pay reference periods & elements of pay: net pay arrangements

Relevant legislation

The legislation that applies to this page is as follows:

* National Minimum Wage Regulations 2015, regulation 9

Some employers operate arrangements where they pay their workers a net amount. Any tax/National Insurance due to be deducted and paid on the worker’s behalf may be calculated by performing “grossing up” calculations. Arrangements for paying tax/National Insurance over to HMRC may also be different to those normally used via the operation of PAYE.

As with all arrangements, it is important to get a full understanding of all payments and deductions (including any payments made by the employer to HMRC in respect of tax and/ National Insurance due on behalf of the worker), and apply normal rules. Where a “grossing up” calculation is operated but there is no evidence of any associated PAYE arrangements in operation it is appropriate to consider whether the payments described as net pay are in fact the only payments to the worker.

Where a tax refund is generated through the operation of PAYE, the payment is not a payment by the employer to the worker in his capacity as a worker (NMWM09060) and does not count towards national minimum wage pay

See also (NMWM11210) for deductions in respect of tax and NICs

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)