National Living Wage - Could You Be Underpaying Your Workers?

The national living wage has replaced the national minimum wage for workers aged 25 and over and is set at £7.50 per hour from 1 April 2017.

The Low Pay Commission (LPC) has issued a report uncovering the scale and nature of non-compliance with the national minimum wage (NMW) and the national living wage (NLW), and has discovered that as many as 1 in 5 UK workers may not be receiving the wages that they are entitled to. They estimate that this may affect between 305,000 and 580,000 workers.

A-typical/Seasonal Workers

A particular area of risk is where staff work irregular hours throughout a given year (for example term-time only working arrangements) but have annualised pay arrangements so they receive their income in 12 equal monthly instalments irrespective of the hours worked that month.  This can result in technical non-compliance with the NLW or NMW because work carried out in busy periods not being paid for until later in the year. 

Salaried Work - A Potential Solution?

Where a worker is performing 'salaried work' then the hours can be calculated by way of an average. If the conditions for salaried work are satisfied it does not matter how many hours the worker actually works in a particular week or month.

For the worker to be doing salaried hours, certain conditions must be met:

• They are paid under their contract for an ascertainable basic number of hours per year (the basic hours)

• They are entitled to an annual salary for the basic hours

• They are entitled to no other payment for the ascertainable basic hours (except a performance bonus) and

• They are paid either in equal weekly or monthly instalments or by varying monthly instalments resulting in the worker being entitled to be paid in equal amounts each quarter.

To ensure that the conditions in relation to salaried hours are met, it will be necessary to have documented the annual hours using the working weeks in the year and the number of hours. It should be confirmed that they receive a salary for these hours (rather than payment of an hourly rate).  Although there is no set requirement that the working hours are in the contract we consider that it would always be helpful to avoid ambiguity and to demonstrate compliance with the NLW.

The government has increased funding to combat non-compliance in this area. It is important to be aware of changes to the NMW and NLW as allegations of failure to pay the NLW are likely to attract adverse media attention.

For further information or advice on compliance, please contact Eleanor Boyd in our Employment Law team on 0117 314 5383.