Employers and the minimum wage
What’s not included in minimum wage calculations
Some payments must not be included when the minimum wage is calculated.
- payments that should not be included for the employer’s own use or benefit, for example if the employer has paid for travel to work
- things the worker bought for the job and is not refunded for, such as tools, uniform, safety equipment
- tips, service charges and cover charges
- extra pay for working unsocial hours on a shift
Find out what counts as working time.
What’s included in minimum wage calculations
Some payments must be included when the minimum wage is calculated.
- Income Tax and National Insurance contributions
- wage advances or loans
- repayment of wage advances or loans
- repayment of overpaid wages
- things the worker paid for that are not needed for the job or paid for voluntarily, such as meals
- accommodation provided by an employer above the offset rate (£7 a day or £49 a week)
- penalty charges for a worker’s misconduct
John is 27 and works 40 hours a week. He earns £7.85 per hour or £314 a week.
He pays £15 a week to rent his uniform and the money’s not refunded. He also chooses to eat in the canteen, and pays £20 per week for his meals.
To calculate his minimum wage, John’s employer must deduct the uniform rental from the pay but not the money paid for meals.
This means John makes £299 per week (£314 minus £15) which is £7.48 per hour. This is below the minimum wage rate of £7.83.
It’s a criminal offence for employers to not pay someone the National Minimum Wage or National Living Wage, or to fake payment records.
Employers who discover they’ve paid a worker below the correct minimum wage must pay any arrears immediately. Use the National Minimum Wage and National Living Wage calculator to work out arrears.
HM Revenue and Customs (HMRC) officers have the right to carry out checks at any time and ask to see payment records. They can also investigate employers if a worker complains to them.
If HMRC finds that an employer has not been paying the correct rates, any arrears have to be paid back immediately. There will also be a fine and offenders might be named by the government.
It’s the employer’s responsibility to keep records proving that they are paying the minimum wage - most employers use their payroll records as proof. All records have to be kept for 3 years.
Pay reference periods
Pay reference periods are usually set by how often someone is paid, for example one week, one month or 10 days. A pay reference period cannot be longer than 31 days.
A worker must be paid the minimum wage, on average, for the time worked in the pay reference period.