In a series of articles we are looking at how even employers who fully intend to pay their staff the national minimum wage (NMW) are being caught out by the complexities of the legislation.  It is costly to get it wrong. HMRC are currently “naming and shaming” offending employers, leading to fines and being faced with making good any underpayments.

Understandably employers are keen not to fall mistakenly foul of the NMW legislation.  In our previous articles we have looked at provision of staff with uniform, trial shifts/inductions and staff accommodation.  Here we consider overtime.

If you pay an employee at a higher rate than their standard pay for some of their hours then the amount of higher rate pay cannot be used to count towards the NMW.  This may cover:

  • Overtime, evenings or weekends
  • Bank holiday working
  • Overtime premium after they have worked a certain number of hours

If you do include this in the calculation then you risk paying the employee less than the NMW.

Premium rates paid for overtime cannot be relied on to “top up” an hourly rate that is below the NMW.

How it works in practice

The following example is taken from the Government guidance –  National Minimum Wage and National Living Wage – Calculating The Minimum Wage 

A 25-year old worker works 20 hours per week and receives total pay of £155. This implies that on average they are paid £7.75 per hour (£155/20 = £7.75). However they work 10 hours per week Monday to Friday at their basic rate, and the remaining 10 hours they work on Saturday and Sunday attracts a shift premium of £0.90 per hour.

Their minimum wage pay is calculated as follows:

  • Step 1: Work out the amount they have been paid above their basic rate. – £0.90 (shift premium per hour) x 10 = £9.00 premium for the Saturday and Sunday work
  • Step 2: work out the minimum wage pay by taking away the premium element from the total pay. – £155 (total pay) – £9.00 (the premium element) = £146 (total minimum wage pay)

This is an average hourly rate of £7.30 (£146/20 = £7.30). This is below the national living wage rate of £7.83 an hour and so is non -compliant.

Practical points

  • Employers need to make sure that they have processes in place to ensure that pay is calculated on an individual basis, which will be the only way to ensure that every employee is being paid the NMW for all their working time.
  • Employers must always ensure that they are aware when an employee moves into a different NMW age bracket that their pay is increased accordingly.

Read more

For more on this subject see:

Hospitality staff uniform and the NMW trap

Hospitality staff accommodation can count towards the NMW

Don’t fall foul of minimum wage with unpaid trial shifts in the hospitality industry