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Minimum wage for different types of work

The National Minimum Wage applies to all workers, whether they are paid by the hour or not. In this section you will find advice on how to apply the minimum wage to different working arrangements for your employees.


Overview
 

The National Minimum Wage is worked out at an hourly rate, but it applies to all eligible workers even if they’re not paid by the hour.

This means that however someone gets paid, they still need to work out their equivalent hourly rate to see if they’re getting the minimum wage.

There are different ways of checking that workers get the minimum wage depending on whether they are:

  • paid by the hour (known as ‘time work’)
  • paid an annual salary, under a contract for a basic number of hours each year (known as ‘salaried hours’)
  • paid by the piece - the number of things they make, or tasks they complete (known as ‘output work’)
  • paid in other ways (known as ‘unmeasured work’)

What counts as working time

For all types of work, include time spent:

  • at work and required to be working, or on standby near the workplace (but don’t include rest breaks that are taken)
  • not working because of machine breakdown, but kept at the workplace
  • waiting to collect goods, meet someone for work or start a job
  • travelling in connection with work, including travelling from one work assignment to another
  • training or travelling to training
  • at work and under certain work-related responsibilities even when workers are allowed to sleep (whether or not a place to sleep is provided)

Don’t include time spent:

  • travelling between home and work
  • away from work on rest breaks, holidays, sick leave or maternity leave
  • on industrial action
  • not working but at the workplace or available for work at or near the workplace during a time when workers are allowed to sleep (and you provide a place to sleep)

Example 1
A care worker has 2 appointments in the morning and doesn’t take any breaks. The worker must be paid the minimum wage for the time he spends at the appointments, plus the travel time between appointments.

Example 2
A care worker has 2 appointments, one in the morning and one in the afternoon. After the first appointment he goes home to have a break before he goes to his afternoon appointment. The time spent travelling from the first appointment to his home and from his home to the second appointment doesn’t count towards the minimum wage.

If the care worker didn’t go home but took a break on the way to his next appointment, he would be paid for any travel time but not for the break.

Example 3
A care worker has one appointment in the morning, then goes to the office to work there. At the office she is entitled to a 30-minute break. Then she goes to another appointment in the afternoon.

The worker must be paid the minimum wage for the time at the appointments, plus the travel time to and from the office. The break at the office doesn’t count towards her minimum wage calculation.

Paid by the hour
 

Workers paid according to the number of hours they are at work are classed as doing ‘time work’.

For these workers, the average hourly pay has to be at least the National Minimum Wage, worked out over the period each pay packet covers - so for a worker who gets paid once a month, this period will be 1 month.

Example

Workers in a call centre are paid for the number of hours they work each month.

Alan works in the call centre. He is 23 and is eligible for the minimum wage rate of £6.70. He works a total of 140 hours during the month of January.

This means he must be paid at least £938.00 for this month’s work (£6.70 multiplied by 140).

Paid an annual salary
 

A worker is doing ‘salaried hours’ work if they’re paid:

  • a set basic number of hours each year under their contract
  • an annual salary in equal weekly or monthly amounts

Salaried hours workers’ contracts might not state the basic number of hours as an annual figure, but it must be possible to work this out. Workers and employers can then use this figure to make sure the rate of pay is at least the minimum wage.

Work out the hourly rate
  1. Find the basic annual hours in the worker’s contract.
  2. Divide this by the number of times they get paid each year (eg 12 if they get paid monthly) - this gives you the average number of hours covered by each pay packet.
  3. Divide the amount they get in each pay packet by this number (average hours). This gives you the worker’s hourly rate.
Example

Jeba’s contract says she must work 2,040 hours each year.

She’s eligible for the minimum wage rate of £6.70 per hour.

She gets paid monthly (12 times a year), so each pay packet covers an average of 170 hours (2,040 divided by 12).

This means she must be paid at least £1,105.00 a month (£1,139.00 divided by 170 makes £6.70) for the basic hours in her contract.

Extra hours

Employers must pay at least the minimum wage for any hours worked in addition to what’s agreed in the worker’s contract.

Paid per task or piece of work done
 

Workers paid per task they perform or piece of work they do (known as piece work) are classed as doing ‘output work’. They must be paid either at least the minimum wage for every hour worked or on the basis of a ‘fair rate’ for each task or piece of work they do.

Output work can usually only be used in limited situations when the employer doesn’t know which hours the worker does (eg as with some home workers). If an employer sets the working hours and the workers have to clock in and out, this counts as time work, not as output work.

Fair rate

The fair rate is the amount that allows an average worker to be paid the minimum wage per hour if they work at an average rate.

There is a way to work out the fair rate per piece of work done which employers must follow. Work out the fair rate

  1. Find out the average rate of work per hour (tasks or pieces completed).
  2. Divide it by 1.2 (this means new workers won’t be disadvantaged if they’re not as fast as the others yet).
  3. Divide the hourly minimum wage rate by that number to work out the fair rate for each piece of work completed.
Work out the average rate of work per hour

To work out the rate to pay workers, employers must carry out a fair test to see what the average rate of work is.
  1. Test some or all of the workers. The group you test must be typical of the whole workforce - not just the most efficient or fastest ones.
  2. Work out how many pieces of work have been completed in a normal, average working hour.
  3. Divide this by the number of workers to work out the average rate.
  4. If the work changes significantly, do another test to work out the new average rate. It’s not necessary to do another test if the same work is being done in a different environment, eg work previously done in a factory being done at home.
Example

Workers are paid for each shirt they make. They can produce on average 12 shirts per hour. This number is divided by 1.2 to make 10.

Andy is 21 and is eligible for the minimum wage rate of £6.70.

This means he must be paid at least 67p per shirt he makes (£6.70 divided by 10).

Paid in other ways (unmeasured work)
 

If the work isn’t covered by any of the other types of work, it’s ‘unmeasured work’.

Unmeasured work includes being paid a set amount to do a particular task, eg being paid £500 to lay a patio, regardless of how long it takes.

To work out the minimum wage for unmeasured work, either:

  • record every hour worked and use the National Minimum Wage calculator to make sure the worker gets the minimum wage
  • make a ‘daily average agreement of hours’

Daily average agreement of hours

This is when the employer and worker agree a typical number of hours per day they expect to work on average. One agreement can cover several pay reference periods (eg weeks if the worker’s paid weekly) if there’s no change in the average number of hours.

Daily average agreements of hours must:

  • be agreed in writing
  • be made before the start of the pay reference period they cover

Say how many hours the work should take each day (on average)

The employer must be able to prove that the number of hours worked on average is realistic.

Example

Louise is paid weekly and is 31. She’s eligible for the minimum wage rate of £6.70 an hour.

In a particular week she’s paid £120.

Her agreed daily average number of hours is 5.

In that week she worked for 4 days, so she’s counted as having worked 20 hours that week (4 times 5).

£120 divided by 20 hours gives a rate of £6 an hour. That’s less than the National Minimum Wage.

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