NMWM09270 - Pay reference periods and elements of pay: premium rates of pay including shift premia: time work

Relevant legislation

The legislation that applies to this page is as follows:

  • National Minimum Wage Regulations 2015, regulation 10(j)

The principle of the National Minimum Wage Regulations is that a worker’s basic minimum wage pay, before enhancement or other allowances (NMWM09090), should not fall below the National Minimum Wage. For output workers see (NMWM09280)

Adjustments must be made to the calculation of National Minimum Wage pay where payments are made to a time worker, which are:

  • in respect of particular duties, and
  • are made at a higher hourly rate than the lowest hourly rate payable to that worker in the same pay reference period (the lowest rate “payable” during the pay reference period is the lowest rate per hour due under the worker’s contract and not necessarily the lowest rate per hour actually paid in the pay reference period), and
  • in respect of the same work.

Where this is the case, the full amount paid is initially included in a worker’s total remuneration, but the value of the premium element of the pay is then reduced from the calculation of National Minimum Wage pay.

Example 1: A care worker is paid £4.00 per hour for shifts Monday to Friday and £7.00 per hour for shifts at the weekend. The premium element of the weekend rate is £7 - £4 = £3. His total remuneration initially includes the full amount of the weekend rate, but his National Minimum Wage pay will then be reduced by the amount paid over and above the lowest rate for the job.

i.e. If the worker works 20 hours during the week, and 15 hours at the weekend.

Total Pay is 20 x £4.00 = £80 plus weekend 15 x £7.00 = £105, a total of £185

National Minimum Wage pay is £140 (£185 less £45 [15 hours @ £3.00])

If a worker is paid for any work done during a pay reference period at a rate which is lower than the standard rate of pay, the excess amount is still determined by reference to the lower rate.

Example 2: In the example above, the weekend rate is now £2.50 per hour and standard rate is £4.00 per hour. Premium element is £1.50 per hour.

Total pay is 20 x £4.00 = £80 plus overtime 15 x £2.50 = £37.50, a total of £117.50

National Minimum Wage pay is £87.50 (£117.50 less £30 [20 hours @ £1.50])

The premium rate reduction applies even where the worker only receives the premium rate and not their contractual standard rate. Case law has indicated that the worker’s entitlement to the National Minimum Wage applies to the worker’s standard contractual arrangement and should not rely on a worker having to work specific hours or times for which they receive some form of enhancement.

Example 3: A nurse works under a contract with a standard rate for weekday shifts and an enhanced rate for weekend shifts. The worker habitually only works weekend shifts for which she is paid time and a half.

National Minimum Wage pay is reduced by the premium element between the lowest basic rate payable under the contract, regardless of whether the worker is actually paid at that rate (i.e. the difference between the time and a half rate and the standard rate).

Where a worker is paid at different rates for performing different duties in the same pay reference period, then there is no reduction for a premium element.

Example 4: A worker at a swimming pool works 12 hours as a life guard and is paid £6.00 per hour. He also works 10 hours as a swimming instructor at a rate of £12.00 per hour.

Total remuneration is 12 x £6 = £72 plus 10 x £12 = £120, a total of £192.

National Minimum Wage pay is £192.00

Where a worker is only entitled to be paid at a premium rate in a pay reference period, then there is no adjustment required to National Minimum Wage pay.

Example 5: A weekly paid school caretaker is not normally paid for the school holidays. However, he is called into work for a week in the summer holidays to help install a new boiler. For this additional work his employer pays him an amount equivalent to time and half for the whole week. As the whole of his pay for that pay reference period is at time and a half, it all counts towards his total remuneration and there is no subsequent reduction. He was not contractually payable at any other rate in that pay reference period.

Where an employer changes pay rates partway through a pay reference period, the lowest rate payable for the work should be used to calculate any premium element for the duration of the pay reference period. This includes the period in the pay reference period falling after the date the pay rate was increased.

Example 6: A worker with a monthly pay reference period from 15 September to 14 October, changes hourly pay rate on 1 October

Pay rate 1 = £5.52

Pay rate 2 = £5.73

The premium element is £0.21per hour.

If the same worker works overtime at an enhanced rate, the premium element is calculated in relation to the lowest rate payable for the work throughout the pay reference period.

Lowest rate = Pay rate 1 - £5.52

For the duration of the pay reference period the excess over £5.52 would reduce National Minimum Wage pay for those hours paid at the higher rate.