Employers and the minimum wage
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 hasn’t 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 can’t be longer than 31 days.
A worker must be paid the minimum wage, on average, for the time worked in the pay reference period.
The minimum wage is calculated differently for some types of worker.
What’s not included in minimum wage calculations
Some payments made by workers must not be included when the minimum wage is calculated.
- payments that shouldn’t 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 isn’t refunded for, such as tools, uniform, safety equipment
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 isn’t 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.
Step 1 Decide what type of employee you need
and Check you can afford to take on employees
- Check how much the National Minimum Wage is
- Find out how much National Insurance you need to pay for your employees
- Check how much sick pay your employees are eligible for
- Check how much you need to pay towards your employee's pension
- Check how much Maternity Leave you need to pay your employees
- Check how much Paternity Leave you need to pay your employees
Step 2 Make your workplace safe and accessible for employees
- Prevent discrimination
- Make your workplace accessible for employees with disabilities or health conditions
- Keep employee information and data safe
- Fire safety
- Health and safety
You also need to make checks when you recruit and employ someone.
Step 3 Register as an employer and set up PAYE
You need to register with HMRC so you can pay tax and national insurance for your employees.
Step 4 Check your responsibilities around workplace pensions
Step 5 Get Employers' Liability insurance
Step 6 Recruit and employ staff