Owner Kate Upcraft Consultancy Ltd
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National Minimum Wage: Time for a rethink

12th Feb 2019
Owner Kate Upcraft Consultancy Ltd
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Definition of Minimum wage in a dictionary

Kate Upcraft believes the consultation on the National Minimum Wage (NMW) regulations is an ideal opportunity to adjust the rules in line with current pay practices.

HMRC’s interpretations

HMRC has been given significant additional resources to police NMW but on some occasions, it appears to interpret the legislation in ways that go beyond Parliament’s original intention. Most noticeable are the arguments over what constitutes a salaried worker, and what deductions from net pay serve to reduce gross pay for the NMW.

It‘s right that there should be robust enforcement action against employers who underpay their staff. But that action should be set in the context of understanding 21st Century pay practices like salary sacrifice which benefit, rather than deprive, employees.


I welcome the consultation which proposes changes to the NMW regulations, as it may bring about some greater clarity and common sense to the application of those rules. The consultation covers “National Minimum Wage regulations which relate specifically to salaried hours work and where employers feel rules unfairly penalise them without generating any benefit or protection for workers”, and the “practical operation of salary sacrifice schemes”. 

Currently, those rules recognise that “people who perform salaried hours work are paid an annual salary in equal weekly or monthly instalments, for an annual number of hours”. Bear in mind this rule is already restrictive if policed literally, as the conditions that need to be met for someone to be able to be paid on a salaried basis are complex to the extent that virtually no employer with salaried staff has totally compliant contracts.

Salaried conditions

To be a salaried worker, all four of these conditions must be met:

  1. The contract has an annual salary (generally no problem)
  2. Show on the face of the contract or in another readily accessible document a specific annual number of hours (big problem: stating 37.5 hours per week doesn’t meet the annual hours requirement)
  3. Any pay other than bonus and salary cannot be averaged over the year but paid based on actual hours eg overtime (usually OK)
  4. The worker must be entitled under his/her contract to be paid in equal weekly or monthly instalments, excluding overtime payments and a performance bonus, regardless of the number of hours actually worked (no problem unless this isn’t your pay frequency!)

Condition 2) trips up most employers who don’t show an annual number of hours. This means that every single hour worked has to be recorded, depending upon the length of the month; it cannot be averaged. This problem is not being addressed in the consultation but is vital to understand, as the other proposals flow from whether somebody is a salaried worker in the first place.

Even if the worker is able to satisfy condition 2) what happens if the pay frequency isn’t weekly or monthly?

At present, the NMW regulations do not except a frequency which is other than weekly or monthly. Also, no pay reference period can be more than 31 days – clearly this is at odds with the organisational structure of many businesses.

Salary sacrifice

The consultation also addresses the problem with salary sacrifice, where employees with pay close to NMW rate are denied benefits that their higher-paid colleagues have access to. The consultation asks for evidence that benefits are being withdrawn, and questions whether any workers would be at risk if the rules were relaxed to allow salary sacrifice to take people below NMW rates.

Feedback needed

I hope both agents and employers respond to this consultation (deadline is 1 March 2019), but also feed back on the vexed question of HMRC’s interpretation of regulation 12. This treats deductions from net pay as reducing gross pay for NMW purposes if the deduction is “for the employer’s own use or benefit”. The inappropriate interpretation of this rule has led to many employers being named and shamed, when in fact the deduction was for the employees’ benefit.

This week we’ve seen Middlesbrough Football club challenging the assertion that allowing employees to spread the cost of buying a season ticket to the club by paying in instalments from net pay was a breach of NMW. In this case, the employees had asked the club if they could allow this facility to help low paid workers.

It’s good to see an employer taking a stance on this point. Many others have understandably just paid the arrears of NMW and the penalties to avoid damaging publicity and the additional costs of a legal challenge. 


This is a hugely important consultation to amend the NMW regulations so that they truly deliver for the vulnerable workers they were intended to protect, rather than demonising all employers for perfectly reasonable pay practices. The current NMW regs also deny employees the opportunity to participate in reward schemes which would be beneficial to them.

The aggressive application of National Minimum Wage (NMW) rules by HMRC over the past few years has left many of us wondering where the line of compliance and non-compliance can be drawn. The national minimum wage regulations ‘owned’ by BEIS had for many years since their introduction in 1998 been interpreted by employers in a range of situations without any challenge,

Further reading

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