This does not affect the minimum rate for workers aged 25 and over (the National Living Wage) which remains at £7.20 per hour (but will rise in April 2017).
Meeting NMW requirements is increasingly a key reputation management and corporate governance issue, as well as essential employment law compliance. The recent Sports Direct controversy and HMRC's practice of naming and shaming non-compliant employers highlight the potential reputational damage.
To calculate whether a worker has received the correct minimum hourly rate, their pay is averaged out over the worker's normal pay period (usually a month, unless the worker is paid more frequently). Businesses and their payroll providers must be on top of the detailed rules, including what deductions could result in non-compliance and what payments and allowances are included.
Some key issues for retailer and leisure businesses:
- Uniforms: Any deductions from workers' pay related to purchasing or maintaining uniforms or equipment need to be taken into account when determining whether the worker has received the correct hourly rate. So, if your staff are required to contribute to the cost of their uniform or the cost of cleaning it, that could result in their pay dipping below the NMW in that pay period. Uniform costs therefore need to be monitored carefully.
If staff are required to purchase a retailer's clothes to wear at work, this is treated as a uniform cost, even if they are offered the clothes at a discounted rate and even though they may also be able to wear the clothes outside work. Monsoon were named and shamed by HMRC for precisely this reason. By contrast, if staff are not required to purchase clothes but have the option to do so, this does not reduce their pay for NMW purposes.
- Deductions from pay (or payments made by the worker) because of the worker's conduct: If the worker's contract permits deductions or requires the worker to make a payment in specific circumstances linked to their conduct, such deductions/payments are not treated as taking pay below the NMW threshold. So, for example, if a worker's contract permits a specific deduction for failure to return items of uniform when their employment ends, the employer would not be liable for failure to pay the NMW, even if the deduction would mean the worker had not received the NMW in that pay period.
- Till shortages: Deductions linked to till shortages work in the same way, providing that the worker's contract permits such deductions. However, employers need to bear in mind that there are specific rules protecting retail workers in this situation. In particular, the deduction has to be made on the day the worker gets paid and the total deducted must not exceed 10% of the wages the worker received that pay day.