Chapter 16Employing labourwho works as a director of his company but takes no
salary (or very little), relying on dividends as income,
falls foul of the Act and must receive the minimum wage
or adjust the hours worked to comply. The company
must also pay employer’s NIC. If the business is dis-
incorporated, the former director would come under
the exemption for the self-employed. Those who are
starting up a business as a company and cannot initially
pay themselves also fall foul of the Act though they
could notionally pay themselves the minimum wage but
remain as a creditor until the company can pay them. As
an alternative, they could set up in partnership because
partners are excluded from the minimum wage provi-
sions, unless they are salaried employees as distinct from
profit-sharing partners. A spouse employed in a family
business is excluded from the provisions under the ‘fam-
ily business’ exception as are other members of the
employer’s family who live at home, but not if the
employer is incorporated, i.e. a family company.
A further solution for those directors who wish or
have to work for less than the minimum wage is not
to have a contract of employment, so that they are not
employees. This appears to be accepted by the relevant
authorities. Furthermore, the DTI (now BERR) has indic-
ated that it will not try to show that the director has an
impliedcontract.
3 Level. National Minimum Wage rates (from 1 Octo-
ber 2008):
Workers aged 22 and over – £5.73 per hour
Workers aged 18 –21 – £4.77 per hour
Workers aged 16 –17 – £3.53 per hour4 Increases in level.This will depend upon the advice
of the Low Pay Commission (LPC) and the economic
situation and is not automatic.
5 Extensions. There is power to apply the Act to those
who do not fit the current definition of a ‘worker’ (s 41).
This could be used to deal with changes in working
practices and to close loopholes which bad employers
may exploit.
6 Calculation. The regulations set out the averaging
period to be used in calculating whether a worker has
been paid the NMW. It is set at a month (i.e. ‘calendar
month’) except where workers are currently paid by refer-
ence to periods of shorter than one month, e.g. a week,
a fortnight or four weeks. In the latter cases the pay refer-
ence period for NMW purposes will be the worker’s
existing pay period. In addition, the hourly rate for
those who are paid an annual salary will be calculated
on an average basis. Therefore, the lowest salary for a
35-hour week would currently be £5.73 × 35 × 52 =
£10,428.60.
7 What counts as remuneration? The regulations deal
with a number of instances of what does and does not
count towards discharging an employer’s obligation to
pay the NMW. Examples of things which do not count
are advances of wages, pensions, redundancy payments
and benefits in kind with the exclusion of living accom-
modation at a fairly low limit.
Payments during absences from work such as sick
pay, holiday pay, maternity pay and guarantee payments
are not included and neither are service charges, tips,
gratuities or cover charges not paid through the payroll.
Thus, discretionary tips left for a worker by a customer
and pocketed by the worker do not count nor would tips
pooled under an employees’ informal scheme and dis-
tributed, but where tips are pooled by the employer and
paid through the payroll they do count as remuneration.
Allowable deductions: a checklist
■Penalties imposed upon an employee for misconduct,
provided that the employer is allowed under the terms
of the contract of service to make the deduction.
■Deductions to repay loans, wages advances or purchase
of shares.
■Deductions to repay any accidental overpayment of
wages.
■Deductions or payments made by the employer or to
the employer for goods or services purchased freely
and without obligation.
■Deductions for accommodation up to a fairly low
limit, i.e. a low rent. The current limit is £4.15 per day
(reg 36, National Minimum Wage Regulations 1999
(SI 1999/584) (as amended by National Minimum
Wage Regulations 1999 (Amendment) Regulations
2006 (SI 2006/2001))).
Note. Deductions for the cost of items related to the
worker’s employment, e.g. tools and uniform, are not
allowable.
Enforcement
The Secretary of State appoints enforcement officers (s 13)
and HMRC is responsible for enforcement by checking
employers’ records to ensure compliance. Complaints
by employees will be investigated and spot checks will be
made on employers.467