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Minimum Wage 2024 - Are you paying the right amount?

HR advice

No matter how small an employer is, they still have to pay the correct minimum wage.

1. Who gets the minimum wage?

People classed as ‘workers’ must be at least school-leaving age to receive the National Minimum Wage, and they must be 21 (from April 2024) or over to receive the National Living Wage.  This also includes part-time staff, casual labourers, agency workers, apprentices, and trainees on probation

2. Who is NOT entitled to the minimum wage?

Self-employed people running their own business are not entitled to the National Minimum Wage or National Living Wage along with directors of companies, and a range of other types of employment.

3. What’s NOT included in minimum wage calculations?

Some payments must be excluded when the minimum wage is calculated.

  • payments that should not be included for the employer’s use or benefit, for example, if the employer has paid for travel to work
  • things the worker bought for the job and is not refunded for, such as tools, uniform, safety equipment
    tips, service charges and cover charges
  • extra pay for working unsocial hours on a shift

4. What’s included in minimum wage calculations

Some payments must be included when the minimum wage is calculated.

These are:

  • Income Tax and National Insurance contributions
  • wage advances or loansrepayment of wage advances or loans
  • repayment of overpaid wagesthings the worker paid for that are not needed for the job or paid for voluntarily, such as meals
  • accommodation provided by an employer above the offset rate (£9.10 a day or £63.70 a week)
  • penalty charges for a worker’s misconduct

5. The Critical Calculation – hours worked

Depending on age and what’s been included in the calculation, if the employee works too many hours, this can reduce the equivalent minimum wage.  For example:-

5.1 No Accommodation provided

Bob is 45 years old and works 55 hours a week on a full-time salary of £30000 annually.  He isn’t provided with any accommodation and lives in his own property.  He has no other bonuses, shift allowance or benefits.

His annualised hours are 2860 (including holiday pay).

£30,000 / 2860 = £10.49 – below the minimum wage of £11.44

5.2 – Accommodation provided free of charge

Fred earns the same amount and works the same hours but is provided with accommodation completely free of charge.

He has an accommodation offset to add to his minimum wage of £69.93 per week = £3636 per year.  This takes his gross pay to £33636/2860 = £11.76 per hour – above the minimum wage.

5.3 Accommodation provided and employee makes a contribution

The rules here are complex and depending on how much the employer charges for rent and/or if the employee contributes to running costs such as utilities or council tax, the accommodation offset may be reduced or ignored completely.  Please check with your accountant to ensure your specific arrangements do not put you at risk of paying below the minimum wage.

6. Employer checks

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

If HMRC finds that an employer has not been paying the correct rates, any arrears have to be paid back immediately. There will also be a fine and offenders might be named by the government.

7. Final notes

Be careful how you value accommodation when calculating the impact on wages or salaries.  Whilst there may be a “commercial” value of providing accommodation, for tax purposes, there is an upper limit on its value which is decreased by whichever amount within or above the offset rate is paid by the employee.

The most significant risk to paying below the minimum wage is working too many hours for a fixed salary.

Note:  these calculations are for illustrative purposes only and you should take specific advise from your accountant or business advisor. Please refer to the UK Government website for more details about Accommodation Offset.