Director's minimum wage?

Director's minimum wage?

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I've recently been discussing the requirement to pay Directors the legal minimum wage - as this could affect the 'dividend versus salary' decision.

As I read it, for the minimum wage to be applicable, the Director must have an employment contract; but in most small 'owner-managed' business cases, I guess no contract is ever drawn up. The contract doesn't of course have to be in writing.

It's obviously now industry practice when advising clients what to pay themselves to start with the usual £7,956 or probably more recently £10,000 (given the employers NIC allowance) levels and then take into account other specific factors relating to the client on top of this.

Does anyone ever consider minimum wage requirements when advising their clients? Or has HMRC ever challenged any of your clients for their salary being lower than the expected minimum?

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By pauld
21st Oct 2014 13:51

employment contract

As you rightly point out, no directors of their own small business will have an employment contract. Therefore they can pay themselves whatever takes their fancy from Nil upwards. Obviously if not director, then MW will have to be considered. Not really sure of the point of your questions?

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Replying to Wilson Philips:
By nodhedz
21st Oct 2014 15:32

My questions came from...

Thanks Paul. 

My questions came from this: HMRC says that the minimum wage doesn't apply to directors (unless they also have a worker's or employment contract). As I understood it, the contract doesn't have to be in writing - it can be implied. So if a Director is typically working a 40 hour week, their minimum wage should be something like £13k.

Strangely, I have a very cautious client who knows this and asked why I only recommended £10k. I've explained but he's nervous that he should be paying the higher amount. The question was really whether HMRC have ever challenged.

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Euan's picture
By Euan MacLennan
21st Oct 2014 14:07

Two questions, so two answers

No

No

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By cbp99
21st Oct 2014 14:36

Tax credits

I understand that if claiming Tax Credits, the director must be paid the minimum wage.

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