Care required when budgeting for wages

07 April 2016

From October 2015 The annual National Minimum Wage (NMW) uprating took effect; the changes to hourly rates were as follows:

  •  age 21 and over: £6.70 (2014/15: £6.50);
  • age 18-20: £5.30 (2014/15: £5.13);
  • under 18: £3.87 (2014/15: £3.79);
  • apprentices age 16-18; or 19 and over and in their first year: £3.30 (2014/15: £2.73).

From 6 April 2016 the National Living Wage of £7.20 per hour will be introduced for workers aged 25 and over. 

Careful considerations

Employers budgeting for these changes need to consider whether they have correctly identified working hours for which pay is due and deduct certain compulsory deductions, to ensure that they meet NMW requirements.

There can be a difference between working hours for the purposes of the Working Time Directive and those that constitute paid work for NMW. 

Employers should take care over compulsory deductions. When employees are compelled to spend some of their wage on an employer-specified item, this does not count towards NMW.

It is also important for employers to consider how their salary sacrifice arrangements will be factored in.

Close monitoring

With HMRC's campaign to monitor NMW compliance, those employers whose rates of pay are set at, or close to, the minimum level will need to consider whether they have correctly identified the working hours for which pay is due. As some 'naming and shaming' in the press has shown, there is also reputational risk to consider.