Making sure that your business complies with the National Minimum Wage regulations seems pretty straight forward when you pay your employees on an hourly rate. However, once you go into the yearly salary arena and people start to work overtime then this becomes a greater challenge.
A number of our clients in hospitality or retail industries are often faced with the hassle of recording the working hours of their salaried employees. When you think about it, paying someone £18k a year seems like a wage that should surely meet the national minimum wage requirements, however the reality is that it all depends on the number of hours that the employee works.
If an employee is working a fixed 40-hour week and just occasional extra hours worked here and there, the hourly rate would be £8.65 (£18,000/52/40) meeting the national minimum wage requirements. But in a busy retail or hospitality environment an employee could work an average of 48 – 54 hours per week.
If we consider the above example, this would mean that the hourly rate for the employee works out to be £6.41 (£18,000/52/54) which is significantly below the national minimum wage of £7.20 for anyone over 25 years.
This is also a common challenge for businesses that pay their employees per piece of work completed. Following a recent HMRC investigation two employees of the Mid-counties Co-op received payouts totaling £18,000 for having been paid less than the minimum wage.
Two newspaper delivery men were paid per round of deliveries which took the men much longer than anticipated by the employer. One of the men Rodney Sharpe received the largest ever individual payout of £14,000 for a breach of the minimum pay regulations.
One of the employees explained that he had to use a car to be able to distribute all of the newspapers by the required time. This meant that he had to incur petrol costs which once deducted meant that he was earning an equivalent of 69p an hour on some days.
The Co-op has accepted the error and explained that they have moved all of the employees to a central payroll where hourly rates are applied for delivery workers. So effectively in order to avoid any potential discrepancies they moved away from payments for rounds to hourly pay.
How can a business make sure that it’s not breaching the minimum wage rules?
- Keep track of hours – If employees do not have set hours or if hours vary every week, a record of the hours they work need to be kept.
- Do the maths – on a quarterly basis take a look at the hours worked and see whether the employee is still being paid at national minimum wage rates.
- Pay hourly or pay overtime – paying employees an hourly rate might be the safest option to go with. Alternatively, you can agree to pay overtime for excessive hours worked.
This can be quite an complicated area to navigate but it is worth getting it right as failure to do so can be expensive. If you are unsure if your current payment arrangements are in line with the national minimum wage legislation or would like some advice, give us a ring on 0203 319 1649.