Guide to national minimum wage (NMW) payments

It’s a criminal offence for employers to not pay someone the National Minimum Wage or National Living Wage, or to fake payment records.

Every Payroll includes an automated check to help ensure compliance with National Minimum Wage (NMW) regulations.

This check calculates the employee's average hourly pay in relation to their total hours worked, ensuring it meets or exceeds the NMW for the period.

How the National minimum wage (NMW) works:

It's the employer’s responsibility to ensure full compliance with National minimum wage (NMW) regulations. Employers should conduct their own checks in addition to using the software.

Pay Subject to NMW

The NMW check uses pay subject to National Insurance A system of contributions paid by workers and employers in the UK, which funds various state benefits, such as the State Pension and Jobseeker's Allowance. Contributions (NIC) to determine total pay for the period.

This includes most elements of an employee's earnings, but there are a few things you need to watch out for:

Tips and Gratuities: These earnings are often subject to NIC but not subject to NMW regulations. Since our software uses NIC rules to calculate pay subject to NMW, tips may incorrectly inflate the pay amount for NMW purposes.

Premium Payments: These earnings are subject to NIC but not subject to NMW regulations. For example, if you offer a extra pay for working unsociable hours on a shift. Since our software currently uses NIC rules to calculate pay subject to NMW, premium pay may incorrectly inflate the pay amount for NMW purposes

Certain Net Deductions from Salary: These earnings are not subject to NIC, but may count towards ‘Pay Subject to NMW’. For example if an employee has a net deduction for uniform, this will not currently reduce the pay amount for NMW purposes.

Salary Sacrifice Employee gets Tax & NI relief Employer gets Ers NI relief The deduction is made before tax and NI. There are a number of special rules with this type of deduction. Contributions: These earnings may or may not be subject to NIC.

You should manually review any pay elements that are subject to NIC but not NMW (e.g., tips). Be cautious of these inflating the total pay and potentially giving a false impression that NMW compliance has been met.

For full details on pay subject to NMW, please review the HMRC guidance. External website

If you have Employers that often encounter these types of payment, then it may be appropriate to disable the NMW check for these Employers.

Hours Subject to NMW

The NMW check considers the total hours worked by the employee, both from their regular working pattern and any additional hours worked during the period.

  • Working Pattern: The hours worked are based on the employee's predefined working pattern (e.g., full-time, part-time). The total hours are annualised to provide an average for the month. For example, an employee with a 40-hour weekly schedule will have their hours calculated as:

    Monthly Hours = (40 hours/week × 52.1428 weeks/year) ÷ 12 months = 173.8093 hours per month.

  • Additional Hours: Any extra hours worked beyond the standard working pattern will be included in the calculation.

Ensure that you have accurately set up working patterns, especially for part-time staff.

Incorrect working patterns may trigger false NMW warnings. For instance, if a part-time employee is set up incorrectly with full-time hours, the software may flag a potential NMW issue due to miscalculated hours.

By following this guidance, you can ensure the NMW check provides accurate results and avoid common pitfalls, such as inflated pay or incorrect working hours triggering unnecessary warnings. Always double-check pay elements and working patterns for accuracy.

While the software serves as an aid, employers are responsible for verifying NMW compliance independently.

Good to know...