What constitutes pay?

When businesses are fined for failing to pay the National Minimum wage, the most common reasons cited for underpaying staff is failing to pay workers when they were travelling between jobs, not paying overtime and deducting money from staff wages for uniforms.

There are four categories that can be considered as pay for the purposes of the NMW:

• the gross amount of basic salary;
• bonus, commission and performance incentive payments;
• piecework payments; and
• accommodation allowance.

The accommodation allowance is the one non-cash benefit that can be taken into account for the purposes of the NMW. However, even this allowance has to be considered with caution as, regardless of the notional value of the accommodation provided, the allowance that can be added to the worker’s basic salary is not particularly high. From April 2018, if the worker is provided with free accommodation, the allowance will be a daily rate of £7 or a weekly rate of £49.

Overtime is also an area that can cause organisations problems. The premium paid for overtime work cannot be taken into account for NMW purposes, so if a worker was normally paid £6.50 per hour but is paid £8.50 for overtime, only the basic rate of £6.50 will count. Employers therefore cannot use overtime payments to top up normal hourly rates that fall below the NMW.

Another area that can cause issues is in relation to certain deductions that an employer makes from a worker’s salary. Deductions that are connected to employment, such as costs of tools or uniforms are unlawful if they reduce the overall level of pay below the NMW.

For workers on salaried hours, who are paid for a fixed number of hours’ work a year and are paid in equal weekly or monthly instalments, the following will be considered working time for NMW purposes:

• actual work;
• standby or on-call time where the worker is required to be available at or near a place of work;
• travelling time on business during normal working hours, although travelling between home and work will not count;
• training during normal working hours either at work or elsewhere; and
• absence when the worker is paid their normal pay; ie holiday and sick leave.

Particular difficulties have arisen recently and are likely to continue to be an issue in relation to whether on-call workers are not only available for work but are actually working. In some cases, the worker may be considered to be working and therefore entitled to the NMW while they are relaxing at home, or even sleeping.