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Minimum wage: know the rules, not just the rates.

Forthcoming changes highlight the need for employers to deal confidently with the underlying rules.

The upcoming changes to the minimum wage highlight the importance for employers to not only be aware of the rates but also understand the underlying rules. Effective from April 1, 2024, the National Living Wage (NLW) will be £11.44 per hour, and individuals aged 21 and above will qualify for NLW instead of the lower National Minimum Wage (NMW).

Compliance with minimum wage regulations is crucial, and miscalculations can expose employers to risks. The complexity of minimum wage rules means that errors can occur even in sectors where historically workers have been paid at or above minimum wage.

Here are steps to ensure compliance with minimum wage regulations:

Categorise Workers: Classify workers based on the type of work they perform. There are four types: salaried hours work, time work, output work, and unmeasured work. Each type has specific rules for determining working time and hours to be paid at minimum wage.

Identify Pay Reference Period: Determine the specific period for which the worker is paid (the pay reference period).

Calculate Average Hourly Rate: Work out the average hourly rate of pay for the pay reference period by calculating pay for the period, considering minimum wage rules on what counts as pay, and subtracting any deductions. Calculate hours worked in the period, considering minimum wage rules on what counts as hours of work. Divide the pay for the period by the number of hours worked to obtain the average hourly rate for the period.

Check Minimum Wage Rate Band: Determine the minimum wage rate band that the worker falls into.

Ensure Compliance: Check that the average hourly rate of pay for the period is not less than the relevant minimum wage rate. If it is less, the pay should be topped up to meet at least the minimum wage requirement.

Employers should be vigilant about compliance with minimum wage rules, as errors can lead to underpayment and potential legal consequences. Common issues arise when paying apprentices, making deductions that result in wages falling below minimum wage, and inaccurately calculating working time.

Compliance with these rules is intricate, and employers are encouraged to seek professional advice or assistance to ensure accurate adherence to minimum wage regulations. Please contact the CB Reid team to help guide you through these changes to your payroll.