Employment law

The Minimum Wage, overtime, equal pay and unpaid work experience

The Minimum Wage, overtime, equal pay and unpaid work experience Image of a doctor working overtime | Crunch

Contents

    Anyone who’s defined as a ‘worker’ (including employees and agency workers) is entitled to the National Minimum Wage (NMW) – you don’t need a written contract to be eligible.

    If you’re unsure of your employment status then read our article “Am I an employee, self-employed, freelancer or worker?”.

    Fed up of the nine to five? Find out more about working for yourself.

    The National Minimum Wage

    There is a government Helpline 0800 917 2368 and a website that offers more advice and information about the NMW.

    The minimum wage is a legal right that covers almost all workers above compulsory school leaving age. There are different minimum wage rates for different age groups of workers as follows:

    • The National Living Wage is £8.72 from 1st April 2020. This will increase to £8.91 from 6th April 2021 to everyone aged 23 and over.
    • The National Minimum Wage for workers aged between 21-24 is £8.20 from 1st April 2020. From 6th April 2021 this will increase to £8.36 for workers aged 21 to 22 (workers over age 23 move to the highest national minimum wage).
    • The development rate for 18-20 year olds is £6.45 from 1st April 2020. This increases to £6.56 from 6th April 2021.
    • The development rate for 16-17 year olds is £4.55 from 1st April 2020. This will increase to £4.62 from 6th April 2021. There are differences in the school leaving age in Scotland (to England and Wales) and this affects when the NMW should be received – see our article here for more details
    • Apprentices in their first 12 months of apprenticeship (or aged under 19), must be paid a minimum of £4.15 from 1st April 2020, increasing to £4.30 from 6th April 2021. See our guide to apprenticeships here.  Apprentices aged 19 or over who have spent a year in their apprenticeship must be paid at least the NMW rate applicable to their age.

    The rules about employing school leavers, now that the government have changed the law on how long young people are required to stay in education or training, are available in our “Employing School Leavers” article.

    Agricultural Workers have slightly different rights to other workers, and more details are available here.

    Workers who work on ‘piece work’ (or output work) have their NMW calculated slightly differently and you can read more details here.

    From 18th June 2016, construction workers posted to the UK from another EU member state must be paid the UK NMW (under the Posted Workers Regulations).

    There’s a government helpline, 0800 917 2368, and a website that offers more advice and information about the NMW.

    To see a list of those excluded from the National Minimum Wage, click here.

    For details about Equal Pay, see our equality article.

    Here are details of the Voluntary Real Living Wage, which is not a statutory requirement although, in 2018, 4,700 employers across the UK have signed up to pay their staff at these higher rates. The real Living wage rose to £9.50 per hour in 2020, and £10.85 per hour in London.

    When should the National Minimum Wage be paid?

    The National Minimum Wage must be paid for all the time you are:

    • At work when required to be working (even if work isn’t possible because, for example, machinery breaks down, materials haven’t arrived, work isn’t available etc.)
    • When you’re on standby or on call time at or near your place of work
    • When you’re on standby or on call time at or near place work
    • Travelling on business during normal working hours – you should be paid for all travel time in connection with your job (not to or from home or work), including travelling from one assignment to another (except if you’re on a rest break), waiting for public transport connections, waiting to collect goods or start a job, travelling from work to training venues (not from home to training venues). This includes waiting to meet someone in connection with work and includes travelling for the purposes of ‘output’ or ‘unmeasured’ work (see below)
    • Training (or travelling to training) during your normal working hours, either at your normal place of work or somewhere else. This also applies to workers required to undertake training before starting work for an employer

    For ‘salaried’ workers who are paid their normal salary when they’re absent from work, which forms part of their contract, the time of absence counts for National Minimum Wage purposes, e.g. when on rest breaks, lunch breaks, holidays, sick leave or maternity leave.

    In 2018, unpaid ‘trial shifts’ were in the news frequently, and at the end of the year, the government published guidance on the very limited instances when unpaid work trials may be legal. It’s important that employers are clear when they can ‘test’ applicants by asking them to do work without paying them.

    MiHomeCare case study

    The BBC reported in 2015 that MiHomeCare staff were being paid less than minimum wage. MiHomeCare is one of the largest care providers in the UK, and an internal company document seen by the BBC confirmed they hadn’t been paying its staff the NMW.

    The BBC also reported the practise of ‘clipping’, where care appointments are scheduled back-to-back with no travel time scheduled between them. As a result, visits are clipped, or cut short. The company were nervous about the practice of clipping becoming public. You can see the BBC’s news article here.

    In February 2016, law firm Leigh Day successfully negotiated a settlement from MiHomeCare for one carer, Caroline Barlow. Caroline had taken legal action against her ex-employer when she wasn’t paid for time spent for her travel; she was also being paid less than the National Minimum Wage, which constituted an unlawful deduction of wages.

    The company settled Caroline’s claim for her travel time. Leigh Day believes “there are potentially thousands more care workers, working for MiHomeCare and other care providers, who are being paid less than the National Minimum Wage”. You can read more details here.

    The European Court of Justice (ECJ) decided in September 2015 that travel time counts as working time. This applies when a worker doesn’t have a fixed place of work, but is required to travel from home at the beginning of the day to the premises of their customers, and to return home from the premises of another customer, following a list or route that the employer has provided.

    Please note, this isn’t related to the minimum wage – only to travel time – but we have included the information here for clarity – you can read the details about travel time and pay in our article.

    When the National Minimum Wage doesn’t need to be paid

    • If you are being paid less than your normal pay, e.g. if you are entitled to receive half-pay while on sick leave
    • If you are taking unpaid leave, that your employer allows you to take
    • If you’re taking industrial action
    • If you’re ‘on-call’ at home or at another location, when you’re not at work and not working (unless you’re actually working from home/the other location during this on-call time, or are called out to attend work during this time)
    • If you’re travelling between work and home, or home and work (even if you return home during the working day between ‘appointments’)
    • If you’re travelling between home and work if you’re going to a place that isn’t your normal place of employment (i.e. you don’t get the NMW for any additional travelling time in these circumstances)
    • If you are a worker who lives in their employers homes and shares in the household chores and leisure activities you may not be entitled to the NMW if you’re living with, and being treated as, part of the family (or are a member of the employer’s family), and you aren’t paying the employer for the provision of meals or accommodation
    • Any premiums that are paid for overtime or shift work, weekend or bank-holiday working, or on-call/sleep-in shifts generally don’t count towards calculating your salary for the purposes of calculating the NMW
    • Tips, service charges, cover charges and gratuities don’t count towards the NMW (e.g. tips should be paid on top of the minimum wage). There are currently no laws on tipping, but there is a voluntary code from the government which you can read about on the Acas page here. In 2018 the government announced they were to introduce a law prohibiting employers from retaining any percentage of an employees’ tips;  by 2021 there have been no further developments!
    • Repayment of expenses isn’t included in the calculation of the NMW
    • Expenses for travel to a temporary workplace aren’t included in the calculation of the NMW
    • Special allowances paid above standard pay, e.g. for working in dangerous conditions, working unsocial hours, geographical payments (i.e. London Weighting), for performing special duties, don’t count (unless they’re consolidated into the workers standard pay or they’re related to the worker’s normal duties)
    • The HMRC have a ‘watch’ list targeting practices by employers that are used to reduce the NMW calculation: e.g. time spent on security checks at the workplace (bag searches etc.) after finishing work is considered working time, for which the NMW should still be paid. Similarly, time spent conducting team briefings should also be considered working time, as should time spent on inductions.

    If you’re a genuine volunteer or voluntary worker you do not need to be paid the NMW – see our article about volunteering for more information.

    Please note that the law relating to whether the NMW needs to be paid during ‘sleeping time’ whilst on-call and not working is complex, and case law is changing constantly – please see our guide to ‘sleeping on the job’ here.

    Here’s what pay should be taken into account when calculating your average hourly rate of pay (during a pay reference period):

    • Your total gross pay (basic salary, any bonus or commission, incentive payments, overtime payments at basic rate) received or earned in that period
    • The only benefit in kind that can be taken into account in NMW calculations is where your employer provides you with accommodation. The NMW may be ‘offset’ by some of your accommodation’s value. From April 2020, the maximum that can be ‘offset’ is £8.20 per day (this increases to £8.36 per day from 6th April 2021). For more details about how this works, please see the Direct Gov page here
    • Benefits in kind that don’t count towards the NMW calculation include meals, fuel, car allowances, employers contributions to pension schemes, medical insurance, childcare vouchers and luncheon vouchers. Overtime payments at ‘premium’ rates are also not included.

    Wagamama case study

    In 2018, Wagamama, TGI Fridays and Karen Millen were found to have breached NMW rules when they failed to compensate staff for having to buy ‘casual’ uniforms. TGIF and Wagamama required staff to purchase black shoes or black jeans/skirt to wear to work – in this case, the workers should receive an additional payment to compensate them for buying clothes, if buying these items brings their pay below NMW/NLW rates.

    Time work

    For National Minimum Wage purposes, there are four different types of work – time work, salaried hours work, output work and unmeasured work.

    If you’re employed on ‘time work’ (you’re paid an hourly rate in relation to the time you work and your hours may vary) – you should receive the NMW for all time when you’re:

    • at work, performing your duties (excluding rest breaks)
    • at work and available for work; required to be available for work on standby, or on-call at/near your place or work and are working
    • awake and working during ‘sleeping time’ at work (which is time when you’re allowed to sleep as arranged with your employer, who provides suitable facilities for you to do so near your workplace), and during time spent travelling on business.

    You can find more information in our guide to sleeping on the job.

    Salaried work

    If you’re employed on ‘salaried work’ (you’re paid an annual salary for set hours – in equal instalments – but your hours may vary), you should receive the NMW for all the time when you’re:

    • at work performing your duties (excluding rest breaks)
    • at work and available for work; working where you’re required to be available for work on standby or on-call at or near your place of work
    • awake and working during ‘sleeping time’ at work (which is time you’re allowed to sleep as arranged with your employer, who provides suitable facilities for you to do so at or near your workplace)
    • spending time spent travelling on business.

    Commission

    People who are paid on commission (entirely or partly on the basis of sales or deals made) or on output work/piecework (who are paid according to the amount they produce and don’t have set hours or start/finish times) must still be paid at least the National Minimum Wage.

    These workers don’t have to be paid the minimum wage for each hour worked, but they must be paid the minimum wage, on average, for the time worked in their pay ‘reference’ period. This ‘reference’ period is the period of time a worker’s wage is actually calculated, e.g. on a weekly or monthly basis, but cannot be longer than one calendar month. This includes time spent travelling on business and to other work premises (from home, if you’re based there.

    Unmeasured Work

    If you’re employed in ‘unmeasured work’ (work that’s not covered by any of the other three categories above [time, salaries, commission/outwork]), such as carrying out contractual duties for a flat rate, e.g. a home carer who lives and works in a client’s home before having a break, where there are certain tasks to be done but no specified hours or times when these tasks must be done.

    Determining for what hours you should receive the NMW is difficult unless you’re employed on a ‘daily average hours agreement’, which is a written agreement that determines the average number of daily hours the worker is likely to spend on their duties – the NMW should be paid for these hours.

    Workers who have entered into a ‘daily hours agreement’ don’t have to be paid the minimum wage for each hour worked, but must be paid the minimum wage on average for the time worked in their pay ‘reference’ period. This ‘reference’ period is time a worker’s wage is actually calculated, e.g. on a weekly or monthly basis but cannot be longer than one calendar month.

    Where a worker hasn’t entered into a ‘daily hours agreement’ but is employed in unmeasured work, their employer must record the hours they work during the pay reference period and pay them for every hour worked. This includes time spent travelling on business and to other work premises (from home, if you’re based at home).

    Agency workers and homeworkers are expressly covered by the NMW.

    Apprentices receive the NMW for all their time spent working and training – where they’re employed on a Contract of Apprenticeship, on a publically funded apprenticeship or working under an Apprenticeship Agreement.

    From 1st January 2011, an amendment to this law disallows employer’s schemes that allow part of a worker’s pay to be replaced with expenses payments for travel – this part of their pay now lies outside the pay counted for National Minimum Wage purposes.

    For information about what happens when your employer declares ‘short-time’ working, see our Written Statements, contracts, and changing terms in your contract article.

    Overtime

    Overtime normally means any hours worked over and above your normal contractual working hours. However, there are different types of overtime:

    • Guaranteed overtime – an employer is required to offer overtime
    • Non-guaranteed overtime – an employer does not have to offer overtime Voluntary overtime – an employee is not required to do any over-time but can accept it if they wish
    • Compulsory overtime – an employee is required to do any over-time offered by the Employer.

    There’s no legal right to pay employees for working extra hours. However, there are some extra caveats and clauses you need to be aware of when it comes to working overtime:

    • If your contract guarantees paid overtime, you should be paid for this. If your contract doesn’t mention the exact rate to be paid, a reasonable rate for the overtime should be paid. If your contract doesn’t mention a right to be paid for overtime, there’s no right to be paid, unless an oral promise has been made
    • Your average pay mustn’t be below the minimum wage
    • Some employers may offer you ‘time off in lieu’ instead of pay for overtime Overtime worked may or may not be taken into account when calculating holiday pay (see our Working Time Regulations guide for more information) or paid maternity, paternity or adoption leave. It will depend whether overtime is specified in your contract of employment. However, see our article about calculating holiday pay including overtime to keep up to date with the latest changes
    • You only need to work overtime if your contract includes it, and you shouldn’t work more than 48 hours per week (see Working Time Regulations guide) Your employer cannot stop you working overtime if your contract guarantees it
    • There are special rules for Sunday working – see our workline guide and this Direct Gov page for more information.

    Acas have produced a comprehensive guide to overtime which you can read here.

    Unpaid work experience/interns

    The minimum wage legislation can make unpaid work experience/internships a grey area, as anyone defined as a ‘worker’ is entitled to a minimum wage. government guidelines say that if someone is taken on solely as a volunteer, for the reason of giving them skills/training, rather than in a normal employee-employer relationship, this can be paid – as long as they have no set hours, are under no obligation to perform the work and can come and go freely.

    For further details about internships/work experience and whether they should be paid or not, see our interns article. You can find out more about unpaid work trials here.

    Students doing work experience as part of a higher or further education course aren’t entitled to the minimum wage if the work experience they undertake is for under a year’s duration.

    Workers rights

    The government-run Pay and Work Rights Helpline which can advise you about the NMW: 0800 917 2368. You can report NMW abuses to them on this number.

    Your employer must keep records that show they’ve paid the NMW for three years, and you have the right to inspect these records if you’ve reasonable grounds to believe you’ve not been paid the NMW; you may complain to an Employment Tribunal if you’re not allowed to see these records. From 1st April 2021, the period increases, and your employer must keep these records for six years.

    Workers also have a right not to be subjected to any detriment from their employer for any action taken to enforce their statutory right to be paid the NMW.

    The National Minimum Wage Regulations are enforced by the HMRC, who employ compliance and enforcement officers and prosecute employers for not abiding by the NMW. From February 2014, the fines for employers who don’t pay their workers the National Minimum Wage increase from £5,000 up to £20,000. The Small Business, Enterprise and Employment Act (approved by Parliament in March 2015), which became effective from 1st April 2016, will allow for the maximum £20,000 penalty for non-payment to apply for each worker who hasn’t been paid the NMW (not just one fine per non-compliance notice).

    From 6th April 2020, the government are making a small number of changes to the NMW 2015 regulations. These include:

    • Employers offering salary sacrifice schemes will no longer be subject to financial penalties from the HMRC, if such schemes take workers’ pay below the applicable NMW rate. This includes schemes where staff buy benefits from their employer and pay for them via salary deductions (e.g. childcare vouchers; this does not include staff having to buy uniforms) However, the workers must have consented to the reduction/deduction, i.e. the schemes must be ‘voluntary’
    • Providing a helpline for employers who operate salary sacrifice schemes
    • Changes to the definition of a ‘salaried worker’ (we won’t go into the technical detail here!)
    • The reinstatement of the HMRC ‘naming’ scheme, which has been on hold since Summer 2018, with an increase in the threshold at which employers will be ‘named’ if they owe total arrears to staff of over £500 in NMW payments.