A worker (not just an employee) has the right to receive the national minimum wage (NMW) unless he or she is:
◉ a student or trainee on work placement
◉ a voluntary worker
◉ living in the employer’s home, working as part of the family and not paying for subsistence (such as an au pair).
The hourly rates of the NMW and the national living wage (NLW) are reviewed every April and are set as:
From April 2018
From April 2019
Aged 25 or over (the NLW)
Aged 18-20 and those aged 21 or over who are in the first six months of a job under an accredited training scheme
Apprentice aged under 19 or in the first year of apprenticeship
How is the hourly rate calculated?
To calculate the hourly rate (to determine compliance with the NMW), an employee’s total gross pay is divided by the number of hours worked during the ‘pay reference period’.
Gross pay includes commission, bonuses, and gratuities paid through the payroll. It excludes payment for overtime, shift premiums, allowances for unsocial hours, London weighting, stand-by payments, and gratuities received directly from customers.
The pay reference period (PRP) is one month, unless the worker is paid weekly or daily, in which case it is the shorter period. If the work done in one PRP is not actually paid until the next PRP (for example, because payment is made monthly in arrears), the pay can be attributed to the earlier PRP to calculate the hourly rate.
The method for calculating the hourly rate depends on the type of work involved:
◉ time work (payment by the number of hours ‘worked’, wherever the location). Admissible hours include those on business travel during normal working time and on stand-by or on-call near the workplace (but not at home) but exclude rest-breaks or absences
◉ salaried work (payment in equal instalments through the year for a set minimum number of hours). Admissible hours are the same as for time work, except that absences attracting normal pay and rest breaks that form part of basic hours are counted
◉ output work (payment according to the amount of work done, for example the number of items produced or sales made, unless this is classified as time work). Payment must be either for hours worked on business travel plus every hour of actual work, or according to a ‘fair piece rate’. A fair piece rate is set at 1.2 times the time taken by an average worker of the employer to earn the NMW. This gives workers who may be below average the opportunity to earn the NMW. The fair piece rate must be notified to the worker in writing
◉ unmeasured work (that is, not ‘time work’, ‘salaried work’ or ‘output work’). This includes work for which there are no specified hours. Admissible hours are those spent on business travel plus either every hour of actual work or those fixed by a ‘daily average agreement’. This is a written agreement made before the start of the pay reference period that it covers, stating the average hours the employee is expected to work each day.
Pay records must be kept for three years
Records of pay and any daily average agreements must be kept for this period. The worker can make a written request to see personal pay records and to copy them. An employer’s refusal of a request, or failure to respond to one, can lead an employment tribunal to award the worker a sum equal to 80 times the NMW.
How is the minimum rate enforced?
On investigation, HMRC may issue a Notice of Underpayment requiring the employer both to make good the underpayment and to pay a financial penalty of 200% of the shortfall (subject to a minimum of £100 and maximum of £20,000) for each affected worker. Compliance within 14 days will result in a reduction of the penalty by 50%. HMRC also produces a publicly accessible list of employers that they have found have not complied with the NMW.
In the event of further non-compliance, HMRC can take criminal proceedings against the employer or commence tribunal or court proceedings to secure the arrears on behalf of the affected worker(s).
Workers may themselves enforce an entitlement to the NMW by presenting a claim for an unlawful deduction from wages (see below) to the employment tribunal or by bringing an action for breach of contract in the civil courts.
A worker has the right not to be subjected to a detriment by the employer for relying on entitlements to the NMW. A successful complaint to the employment tribunal that the worker has been victimised for doing so can result in compensation.
Employees have the right to receive an itemised statement that sets out gross earnings, net pay, and fixed and variable deductions. From 6th April 2019 workers also have the right to an itemised pay statement including hours worked if they are hourly paid. An employee or worker can complain to the employment tribunal if no statement has been provided, or if the statement does not refer to an ‘unnotified deduction’ (a deduction that the employee has not been told about, even if it is otherwise valid). The tribunal may award compensation up to a maximum of the total unnotified deductions in the 13 weeks before the complaint was made.
Deductions from a worker’s ‘wages’ (this covers salary) are unlawful, unless:
◉ the deduction is allowed by statute (such as National Insurance, tax and court orders)
◉ the deduction is provided for in the contract, or
◉ the worker has given written consent for the deduction before the deduction was made.
The same restrictions apply to any requirement or demand for a worker to make payments to the employer from his or her ‘wages’. Some types of deduction or payment are excluded from this specific requirement for clear authority, including those to reimburse overpayments (which must, nevertheless, be shown to have been made – otherwise, the employer could be sued in the ordinary courts for the money due).
As well as salary, the expression ‘wages’ includes holiday pay, bonus, commission and certain statutorily-based payments, including Statutory Sick Pay, Statutory Maternity Pay, Statutory Paternity Pay, Statutory Adoption Pay and Statutory Shared Parental Pay. However, the definition of 'wages' excludes compensatory severance payments.
A ‘deduction’ occurs when a worker receives less than the amount that is ‘properly payable’ according to the contract or any other legal obligation or commitment. So, for example, an employer’s non-payment of remuneration for time that a worker spent taking industrial action, whether ‘official’ or not would not be a ‘deduction’ – because, subject to certain exceptions (such as annual leave or sickness), the worker is not entitled to receive pay for time spent absent from work.
A worker can complain to the employment tribunal about an unlawful deduction from pay or an unlawful payment demanded by the employer. The claim should be presented to the tribunal within three months of the unlawful deduction concerned.
Note: Where there is a tribunal claim about a linked series of deductions or underpayments of a particular type, some of which occurred more than three months before presentation of the claim, the entire series can be considered by the tribunal provided the last deduction or underpayment in the series occurred in the three months preceding the claim. For claims presented on or after 1st July 2015, however, awards of back pay are limited to two years, except where the claim is for statutorily-based payments (see above).
If a claim is successful, the employer will be ordered to reimburse the employee and will lose the right to recoup the money in the future. The employer may also be required to compensate the employee for any additional financial loss suffered because of the unlawful deduction or payment.
In retail, deductions for stock deficiencies or cash shortages are, in any event, limited to 10% (gross) of any single instalment of pay (except for the final one, for which no limit applies).
The deduction of trade union subscriptions from pay by the employer (‘check-off’) requires the employee’s written authorisation before the deduction is made. Otherwise, the deduction is recoverable (from the employer) by complaint to the employment tribunal.
An employee is entitled to a guarantee payment for any day on which he or she is temporarily laid off. The payment is based on the ‘guaranteed hourly rate’. This is calculated by dividing ‘one week’s pay’ by the contractual number of weekly hours and multiplying the result by the number of hours of work lost on the day in question. Reviewed annually, from April 2019, the maximum guarantee payment is £29.00 per day.
The entitlement to guarantee payments is, for a normal five-day working week, limited to five days in any rolling three-month period. Payment may be made only if:
◉ the employee has had at least one month’s continuous employment
◉ the lay-off is not due to a trade dispute
◉ the employee has not unreasonably refused to do suitable alternative work
◉ the entitlement has not been exhausted in the previous three months.
An employee can complain to the employment tribunal that a guarantee payment is due. If this is successful, the tribunal may order the employer to pay the amount due.
There is a possible exemption from the right to a guarantee payment if a collective agreement already makes provision.
Relationship to the employer’s contractual liability
Whatever the employee’s contract says about reducing or eliminating pay where there is a shortage of work, the guarantee payment is an employer’s unavoidable obligation. But, unless an employee’s contract clearly allows for lay-off without pay or for short-time working on reduced pay, the employer will be liable to pay the full contractual daily or weekly rate (which will include the statutory guarantee payment). If the employer fails to pay the full contractual rate, it will be in breach of contract and open to claims for unlawful deduction from wages (see above). If the employee resigns and establishes ‘constructive’ dismissal, the employer will be open to claims for unfair dismissal and/or a statutory redundancy payment.
Other liability for lay-off or short-time working
There are separate statutory provisions giving an employee the right to claim a statutory redundancy payment after a specified period of short-time working and/or lay-off. These use a different definition of ‘lay-off’, based on a full week without work.
Employees have a right to pay for up to 26 weeks if specified health and safety regulations require them to be suspended from work. This provision does not cover absence for ‘ordinary’ sickness or injury.
Conditions for payment and for enforcement are similar to those for a guarantee payment. An employment tribunal is able to award up to 26 weeks’ pay to a successful complainant.
Statutory Sick Pay (SSP) is payable for a maximum of 28 weeks in any period of incapacity for work or linked periods of incapacity. A period of incapacity for work is an absence from work because of illness of at least four days, whether or not these are working days.
Exceptions to this include employees:
◉ on short contracts of service
◉ with earnings below the lower earnings limit for National Insurance Contributions
◉ who are sick within 57 days of being paid certain state benefits, such as sickness benefits and maternity allowances
◉ who have done no work under the contract of service
◉ involved in a trade dispute
◉ who have received the maximum SSP
◉ working abroad, outside the European Union
◉ in legal custody.
Responsibility for direct payment (as ‘incapacity benefit’) is transferred to the Department for Work and Pensions (DWP):
◉ at the beginning of the incapacity if the employee is excluded as above, or
◉ after the maximum entitlement to SSP, or
◉ when liability ceases for some other reason, such as when employment ends.
Statutory sick pay (with effect from April 2019)
Normal Weekly Earnings Weekly SSP
Below £118.00 nil
£118.00 or more £94.25
The payment rates are reviewed every April, and are increased in line with any rise in the Consumer Prices Index (CPI) to the previous September.
An employer must automatically enrol each ‘eligible jobholder’ who is not already a member of a qualifying pension arrangement into a suitable pension scheme.
The employer is required to provide information about auto-enrolment, the pension scheme concerned, and the right to opt-out (see below).
Suitability as an auto-enrolment scheme is assessed by different criteria according to whether the scheme is defined contribution (the employer can generally self-certify), defined benefit or hybrid.
An eligible jobholder is a permanent or temporary employee or an agency worker who is:
◉ aged between 22 and state pension age; and
◉ earns at least £10,000 per year (for tax year 2019/20) – the 'earnings trigger'.
The employer can postpone enrolment for up to three months.
From 6th April 2019 onwards, the minimum contribution is 8% in total with the employer contributing at least 3% (employee contributions of 5%) although the employer can pay more, which can decrease the amount the employee has to contribute. In 2019/20, contributions are calculated on earnings between £6,136 and £50,000.
Those automatically enrolled have the right to opt out, but a jobholder who exercises this right will be automatically re-enrolled every three years.
Non-eligible jobholders can 'opt in' to the automatic enrolment scheme by serving notice on their employer. However, those who earn less than the lower end of the qualifying earnings band (£6,136 in 2019/20) will not be entitled to benefit from any employer’s contributions.
Criminal offences (through the Pensions Regulator) attach to recruitment practices or inducements designed to encourage individuals to opt out.
Workers can make a complaint to the employment tribunal if they are subjected to detriment or dismissed for pursuing their rights or benefits (real or perceived) on auto-enrolment.
Scope and conditions
Legislation requires, in certain circumstances (see below), equality in contractual terms and conditions of employment (including rates of pay and pensions) for men and women. The rules described here are one part of the laws to eliminate discrimination because of sex.
Contracts of employment are deemed to contain a sex ‘equality clause’ and occupational pension schemes a ‘sex equality rule’. Each secures equal pay/pensions if a female and a male are both employed:
◉ ‘in the same employment’, that is, in the same ‘establishment’, or in another establishment of the same (or an associated) employer, where common terms and conditions are applied either generally or to relevant employees, and
◉ are also engaged
○ ‘on like work’, which is work of the same or a broadly similar nature and if the differences in frequency, nature and extent are not of practical importance; or
○ ‘on work rated as equivalent’, such rating being by a job evaluation study under various headings of demands made. If the method of job evaluation has treated men and women differently under any heading and but for this a woman’s job would have been given equal value, the work may be rated as equivalent; or
○ ‘on work of equal value’, if the demands made on an employee under, for instance, such headings as effort, skill and decision-making are determined by a tribunal to be of equal value to those made upon an employee of the opposite sex, even though the work is not ‘like work’.
The employer will have a defence if it can demonstrate that the variation in the compared employees’ terms is due to a material factor:
◉ that does not involve treating one less favourably because of his or her sex; and
◉ if it nevertheless puts the claimant’s sex at a relative particular disadvantage, that is still objectively justified (as being ‘a proportionate means of achieving a legitimate aim’).
Monitoring and enforcement
Individual enforcement and remedy are normally through application to the employment tribunal for a declaration of rights and (except in cases of equal treatment for pensions) for arrears of remuneration or for damages normally covering six years (or, in Scotland, five years). For pensions, the employer is under a duty to provide the pension scheme with the necessary funds to ensure equality.
Where an equal pay claim is successful, the tribunal must also order the 'losing' employer to do an equal pay audit, to identify and explain any other differences in pay for men and women and to set out its plans for avoiding further breaches of the equal pay laws. There is a fine of up to £5,000 for failing to do an audit.
A claim for equal pay to the employment tribunal must normally be made within six months of the end of employment.
However, an action for equal pay (breach of the statutorily implied ‘equality clause’ – see above) is possible in the ordinary courts, where the time limit for bringing proceedings is six years (of the alleged breach, not the termination of employment).
There is also a complaint to the tribunal about any victimisation for pursuing rights of equal pay.
Note: the code of practice, Equal Pay, issued by the Equality and Human Rights Commission is both for the guidance of employers and for tribunals to take into account in deciding claims.
Exceptions to the operation of a sex equality clause or rule
◉ the amounts a man and woman are eligible to receive in pension, if the difference is attributable only to the different entitlement of each under the state pension; and
◉ the amount of benefits or of the employer's contributions to such benefits that are based on different actuarial factors.
Gender Pay Gap Reporting:
For each 12 months from the pay period that includes:
◉ for all public sector employers of 150 or more people, 31st March 2017; and
◉ for all private and voluntary sector employers of 250 or more people, 5th April 2017
there is an obligation to report annually on the difference between the pay of male and female employees.
Comparison on both a mean average and a median basis, the difference being expressed as a percentage of the mean and median female rates. Calculation of mean and median rates exclude any reduced pay during periods of sick leave or maternity or other family-related leave, and in some cases sick leave.
'Pay' includes basic pay, holiday pay, paid leave, maternity pay, sick pay, shift premia, area allowances, car allowances, on-call allowances, standby allowances, clothing allowances, first-aider allowances and fire warden allowances. It does not cover overtime, expenses, salary sacrifice payments, benefits in kind, redundancy pay, arrears of pay or tax credits.
For all bonuses, profit share payments, Long Term Incentive Payments and the equivalent value of share allocations awarded or made in the 12 months leading up to 31st March/5th April 2018 and each of its subsequent anniversaries, the annual report must include both the proportion of each gender group that has received them and their mean value for each gender group.
An employer must also state the number of male and female employees whose pay falls within each quartile of the organisation's overall pay range.
The report for any given year, signed by a director, must be published within 12 months of the relevant 31st March/5th April (that is, by the following 30th March/4th April), held on the organisation's website for three years and uploaded to a central government website.
An employer's failure to report will be an unlawful act.
Any term in a contract of employment or policy that seeks to prevent or restrict a person from:
◉ disclosing or seeking to disclose (to anyone) information about his or her terms of employment; or
◉ seeking disclosure of information from a colleague or former colleague about the colleague’s terms
is unenforceable if the information disclosed or sought is or would be a ‘relevant pay disclosure’, which is one made to find out whether or to what extent there is a connection between pay and the existence of a particular ‘protected characteristic’.
Under the Working Time Regulations (WTR), an employer should ensure that a worker (employee or contract worker) does not work more than an average of 48 hours per week. The average is normally taken over a ‘rolling’ 17-week period. All employers are required to keep records that are sufficient to show whether the limits on working time are being complied with.
However, an employee may enter into an ‘opt-out’ agreement to avoid the 48-hour restriction. This is terminable by a minimum notice of seven days and a maximum of three months.
There is no 48-hour maximum on weekly working time for those whose work is classified as ‘unmeasured’. Examples of these workers are executives/managers and family workers, such as au pairs.
The hours of night workers should be based on an averaged maximum of eight hours per 24 over the 17-week reference period. This does not apply to people whose jobs involve continuity of care or surveillance, although they are entitled to compensatory rest periods.
All night workers have the right to a free health assessment before starting night work and at regular intervals during it. The purpose is to determine whether the person is fit to do night work.
People aged 15 to 18 are subject to an absolute maximum of eight hours’ work a day and 40 hours per week.
For all road transport workers there is an absolute maximum of 60 hours per week.
Workers are entitled to one daily rest period of 11 hours in a 24-hour period and one weekly rest period of 24 hours in a seven-day period. In addition, they are entitled to one rest break of 20 minutes during any period of six hours or more. However, different rules apply to young workers and for certain categories of night worker.
Employers can make some amendments to these obligations if they reach a collective agreement with a trade union or a workforce agreement with the elected representatives of the employees. The agreement can include changing the reference period for calculating the average working week and the provisions on rest periods.
Enforcement of rules on working hours
An employee has the right not to suffer a detriment for relying on rights under the WTR.
Enforcement of the regulations is either:
◉ for weekly/daily hours and night work, by the Health and Safety Executive (with the possibility of prosecution and unlimited fines); or
◉ for rest periods and breaks, by an employee’s claim to the employment tribunal. A tribunal can award compensation that reflects any loss sustained by the employee as a result of the employer’s breach of the regulations.
The WTR provide that workers are entitled to a minimum of 28 days’ (or 5.6 weeks’) paid annual holiday, which can include bank/public holidays. This entitlement exceeds the minimum requirement of 20 days specified by the Working Time Directive (WTD) of the European Union.
In the year that the worker joined the employer, the entitlement accrues at the rate of one-twelfth per month. Entitlement for part-time workers who work less than five days per week is calculated pro rata.
The WTR do not generally provide for holidays to be carried over into the next holiday year (however, see Entitlement accrued during absence). And payment in lieu of holidays is generally only allowed on termination of employment.
Of course, the contract of employment can improve on the minimum entitlement. Also, different rules (on carrying over, say) can be applied to the amount of holiday above the minimum specified by the WTR.
Notification of leave
Most employers have their own rules for notification of holidays. The WTR also provide a formula: an employee must give advance notification of a period that is at least twice the length of the intended holiday. So, if the employee wants to take two weeks’ leave then four weeks’ notice must be given. If the employer wants to refuse the employee permission to take a period of leave, the notice required to the employee is the length of the period of leave requested (for example, two weeks in advance of a requested fortnight’s leave).
An employer can also require an employee to take some or all of the minimum holiday entitlement on particular dates. For this to be valid, the employer must give notice of at least twice the length of the stipulated leave.
Entitlement accrued during absence
People on maternity leave or extended sickness absence will accrue holiday entitlement during these absences and can choose to take paid leave either during the absence (for example, when entitlement to sick pay has expired) or afterwards. This principle is derived from decisions of the Court of Justice of the European Union (CJEU) on the interpretation of the WTD. In particular, the CJEU has confirmed that employees who return in a subsequent leave year will have the right to take leave accrued earlier. This creates a superficial conflict with the United Kingdom’s own prohibition on carrying over leave (see above). However, in accordance with established principles of interpretation, the UK courts and tribunals have been able to ‘read words into’ the WTR to make them compatible with the ECJ's rulings.
Holiday coinciding with sickness
The CJEU has ruled that, under the WTD, one or more days of holiday coinciding with a period of sickness, certified or otherwise properly verified, should be reinstated so that the worker can take the leave again. There is no conflict on this subject with the WTR, which do not address it at all. So UK courts and tribunals can simply adopt the CJEU's approach without even needing to read words into the WTR.
Payment for holiday
Each period of holiday falling within the first 20 days' entitlement under the WTR (the minimum requirement under the WTD – see above) must be paid in line with the worker's 'normal remuneration'.
All elements of recent wage/salary payments that are 'intrinsically linked' to the performance of contractually required duties (such as overtime, shift premia, production bonuses, commission, standby/call-out allowances) may have to be included in the calculation – often by averaging over a preceding 'reference period' - of holiday pay.
Change alert: From 6 April 2020, the reference period for determining an average week’s pay (for the purposes of calculating holiday pay) will change from 12 weeks to 52 weeks, or if employed for less than 52 weeks, the number of complete weeks for which the worker has been employed.
Enforcement of holiday entitlement
An employee can submit a claim to the employment tribunal if leave has been denied, or if leave has been taken but the employee has not received the appropriate payment for it.
Change alert: The government has outlined its intention to extend state enforcement (as exists for NMW failures) to “vulnerable workers’ holiday pay rights”. However, no definition of “vulnerable” has been provided and it is not yet known which body will be responsible for enforcement, nor has any time table been announced.
Overpayments on holiday pay
If the employee takes more leave than the annual entitlement, the employer may recover the equivalent amount by a deduction from wages or salary only if a contractual provision or prior agreement so permits (see above).