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When working out minimum wage pay the starting point is the worker's total pay in a pay reference period, see National Minimum Wage and Living Wage pay reference period - ie the pay received by the worker before the deduction of income tax and National Insurance contributions.

Incentive pay

Incentive payments count towards minimum wage pay if they relate solely to the performance of a worker and are made as part of an incentive, sales commission, merit, or any performance-related pay scheme.

Bonuses

Bonus payments count towards minimum wage pay. For an explanation of how bonuses should be allocated to different pay reference periods, see National Minimum Wage and Living Wage pay reference periods - bonuses.

Pay that doesn't count as minimum wage pay

Total pay for minimum wage purposes excludes payments that are:

• loans
• advances of wages
• pension payments
• lump sums on retirement
• redundancy payments
• rewards under staff suggestions schemes

Tips, gratuities, service charges, and cover charges don't count towards minimum wage pay. This is regardless of whether they are paid through your payroll or are given directly to workers by customers. See commission, bonuses, tips and gratuities.

Benefits in kind also do not count towards minimum wage pay (even if they have a monetary value) - but note the special rules for employer-provided accommodation. See .

Other amounts reduce the total minimum wage pay:

• money paid by the employer to the worker in respect of tips, gratuities, service charges and cover charges from customers (but see below)
• the premium element of pay for work paid for at a rate higher than the worker's standard pay rate
• allowances other than those linked to performance
• payments to reimburse expenses
• some payments in respect of absences

You may pay a worker at a higher rate for some of the work they have done during a pay reference period (PRP), for example:

• working overtime
• weekend or night shifts
• working on bank holidays
• working longer than a certain number of hours

If you do, the amount the higher pay rate exceeds the basic rate - called the premium element - does not count towards minimum wage pay.

Calculating the premium element

To calculate the premium element where the same basic rate applies to all the work done by a worker in a PRP:

Step 1: Assume that all the hours worked in the PRP have been paid for at only the basic rate.

Step 2: Multiply the number of hours worked by the basic rate.

Step 3: Subtract the resulting total from the total of pay actually received for the hours worked.

The remainder does not count toward minimum wage pay.

Example one

A 23-year-old worker works a basic 20 daytime hours at £6.20 an hour. They work an additional five hours at night from Monday to Friday at a premium rate of £7.00 an hour. They also work four hours of overtime on Saturday at a premium rate of £8.50 an hour. To calculate their minimum wage you should:

Step 1: Work out the amount they have been paid above their basic rate:

• £7.00 - £6.20 = £0.80 x 5 hours = £4.00 premium for the night work
• £8.50 - £6.20 = £2.30 x 4 hours = £9.20 premium for the Saturday work

Step 2: Work out the minimum wage pay by taking away the premium element from the total pay:

• Total pay £19.30 (20 hours x £6.20 + 5 hours x £7.00 + 4 hours x £8.50) minus the premium element £13.20 (£4.00 + £9.20) = £6.20
• Divide the minimum wage pay by the hours worked £180.00 / 29 = £6.20

This is lower than the National Living Wage rate of £12.21 an hour (which is the rate for 21 years old and over) and so is not compliant with the minimum wage.

Example two

A 30-year-old worker works 40 hours a week and is paid £224.00 basic pay (equivalent to £6.10 an hour), but also works 8 hours overtime paid at £7.00 an hour. The total pay for the week is £300.

To calculate minimum wage pay:

Step 1: Work out the amount they have been paid above their basic rate (the premium element).

£7.00 - £6.10 = £0.90 x 8 hours = £7.20.

Step 2: Subtract their premium element from their total pay.

£300 - £7.20 = £292.80.

Step 3: Divide their minimum wage pay by the hours they worked.

£292.80 ÷ 48 = £6.10.

This does not comply with the National Living Wage rate of £12.21 an hour (which is the rate for 21 years old and over) as the worker is entitled to this. You have to pay them more.

Different pay rates for different jobs

If you pay a worker different basic rates for different jobs or different duties - rather than premium rates for the same job - you need to do separate calculations for the hours worked in each job to calculate minimum wage pay.

For example, a worker works part of the day doing semi-skilled work on a machine and is paid £9.00 an hour but helps clean the factory for another part of the day and is paid £6.95 an hour. There is no premium to subtract in this case.

Allowances

Some employers pay workers special allowances over and above standard pay. For example, if the worker:

• works in dangerous conditions
• works unsocial hours
• performs special duties over and above a worker's normal duties
• is on call for work

These allowances do not count towards minimum wage pay unless you consolidate them into the worker's standard pay or if they relate to the worker's performance.

The pay reference period is the period you pay a worker for. It is the basis for calculating whether you have paid a worker at least the minimum wage.

You do not have to pay a worker the minimum wage for each individual hour worked - but in general, you must pay them the minimum wage on average for all the qualifying time worked in a pay reference period.

A pay reference period is usually the period of time for which a worker's wage is actually paid. For example:

• workers paid daily will have a pay reference period of one day
• workers paid weekly will have a pay reference period of one week
• workers paid monthly will have a pay reference period of one month

For the purposes of the minimum wage, a pay reference period cannot be longer than one month. If you pay your workers at intervals more than a month apart, eg quarterly, you still need to make sure that workers receive the minimum wage each month.

Pay counted during a pay reference period for minimum wage purposes

For minimum wage purposes, the pay allocated to a pay reference period is any pay:

• received during that period
• earned in that period but not received until the next pay reference period

For example, if a worker earns commission towards the end of the current pay reference period it may not be possible to calculate their earnings in time to be included in their pay for that period. If you pay it to them in the next pay reference period the money will still count towards the period they earned it in.

However, if you delay the payment by more than one pay reference period you cannot usually count the money towards the period the worker earned it in. Instead, it counts towards the period in which it is paid.

Any pay counted in the period the worker earned it in rather than the period you paid it to them must stay transferred. You cannot include it in the pay reference period when the worker received it as well because this would be double counting.

Most of an annual bonus received in a pay reference period will count only towards the minimum wage pay received in that period. However, a proportion of the bonus - based on your pay reference periods - can count towards pay received in the previous pay reference period.

For example, if you pay an annual bonus in December and the pay reference period is one month, you can count one-twelfth of the bonus towards minimum wage pay in November. The rest of the bonus counts towards minimum wage pay in December.

Example calculation: allocating an annual bonus to a pay reference period

You pay a worker £950 for 152 hours of work per month - all of which counts as minimum wage pay. You pay them a bonus in December of £500 for work performance in the 12 months ending on 31 December.

You should calculate their rate for January - October separately - none of the £500 bonus can count towards minimum wage pay for these months: £950 ÷ 152 hours = £6.25 per hour.

For the November pay reference period you can use a twelfth of the bonus in their minimum wage pay - the proportion that relates to that pay reference period: £500 ÷ 12 months = £41.67.

The worker's total minimum wage payment for November is: £950 + £41.67 = £991.67.

Therefore, the hourly minimum wage pay for November is: £991.67 ÷ 152 hours = £6.52.

For the December pay reference period you can include the remaining total of the bonus: £500 - £41.67 = £458.33.

So the total minimum wage pay is: £950 + £458.33 = £1,408.33.

Therefore, the hourly minimum wage pay for December is: £1,408.33 ÷ 152 hours = £9.27.

Some workers, typically agency workers, record the time they have worked during a pay reference period in timesheets.

Generally, hours recorded in a timesheet will count towards the minimum wage for the pay reference period in which the worker worked the hours. However, for this to apply you must pay the worker for the hours in that pay reference period or the next pay reference period.

Special rule for paying the worker

If a worker submits their timesheet within the four working days at the end of the pay reference period after they did the work a special rule applies. You have until the end of the next pay reference period to pay the worker. If you do this, you can count the hours in the pay reference period they were worked when calculating the worker's minimum wage pay.

For example, you pay a worker at the end of each month - so they have a monthly pay reference period. To be able to count pay towards the hours recorded on their timesheet as worked in May then you should pay the worker for them in either May or June.

However, if the worker gives you their timesheet two days before the end of June, then to be able to count the pay towards the hours recorded in their May timesheet in that pay reference period you should pay the worker for them in either June or July.

The following deductions or payments will reduce a worker's National Minimum Wage or National Living Wage pay.

• deductions for your own use or benefit
• deductions or payments from the worker to the employer for expenditure connected with the job - for example tools, uniform, or travel costs - however if you refund the worker for these payments the refund counts as minimum wage pay in the pay reference period in which it is made
• payments by a worker to another person for things connected with the job - for example tools or uniform - however if you refund the worker for these payments the refund counts as minimum wage pay in the pay reference period in which it is made
• certain deductions from pay and payments by the worker for accommodation provided - see

You cannot make any of these deductions if making it would drop the worker's pay below the minimum wage rate.

A worker may want you to deduct other sums from their pay that they are liable to pay to other people, for example, their trade union subscription or pension contribution.

These deductions do not reduce minimum wage pay provided the amounts are not expenditure required in connection with the worker's employment or for your own use or benefit.

Benefits in kind

Benefits in kind, except accommodation, do not count towards minimum wage pay. It makes no difference whether the benefits have a monetary value. Neither does it make any difference whether the benefit is taxable or not.

If you offer such benefits to the worker, the value or notional value of the benefits can’t be counted towards minimum wage pay.

Examples of benefits in kind that do not count towards minimum wage pay include:

• meals
• fuel
• car
• employer’s contribution to the worker’s pension fund
• assistance with removals
• medical insurance
• luncheon vouchers
• child-care vouchers

Living accommodation

Living accommodation provided by you to the worker is the only benefit in kind that can count towards a worker’s minimum wage pay, but only to a limited extent as explained below.

For minimum wage purposes, living accommodation has to provide the worker with unrestricted access to accommodation suitable for day to day living.

When you provide living accommodation you might choose to:

• deduct rent from the worker’s pay
• charge a specific amount once the worker has received their pay
• provide living accommodation on an uncharged basis as part of a package

In all these cases, the rules allow only a notional daily amount to count towards minimum wage pay. See  for more information.

Accommodation offset

If an employer provides a worker with free living accommodation a notional daily amount called the accommodation offset is counted towards minimum wage pay.

This offset amount, which is expressed as either a daily or weekly rate, does not reflect market rates or the actual cost of renting the accommodation.

The offset amount has been put in place to discourage employers from trying to recoup the minimum wage paid to workers by charging excessive accommodation charges.

To view the current and historical accommodation offset rates see .

Accommodation offset rates are set in April each year.

Where you charge the worker for the living accommodation, either by making a deduction from the worker’s pay or by accepting a payment from the worker, the worker’s minimum wage pay will only be reduced if you charge more than the amount of the accommodation offset. By doing this there is a risk it will reduce the worker’s pay below the minimum wage. There are some limited exceptions applying to a Higher Education Institution, Further Education Institution, a 16 to 19 Academy, a local housing authority or a registered social landlord.

The accommodation offset is intended to discourage employers from recouping the minimum wage paid to a worker by levying excessive accommodation charges.

The accommodation offset rate doesn’t seek to reflect the actual cost to you or the actual value of renting accommodation for the worker. Allowing a market rate would not recognise the advantages to you of providing living accommodation. Also, the standard and types of accommodation and, consequently, the market value of accommodation can vary considerably.

Additional charges, utilities, etc.

Any charges the worker is obliged to pay as a condition of being provided with living accommodation, including amounts for gas, electricity, water and provision of furniture, must be regarded as a charge paid in respect of the provision of living accommodation.

Such charges should be taken into account when determining the total charge for living accommodation, and when calculating the minimum wage under the accommodation offset rules.

When is living accommodation provided by the employer?

The accommodation offset provisions apply whenever you provide living accommodation to a worker. You may provide living accommodation in a wide range of circumstances, not merely where you own the property occupied by the worker.

You may offer living accommodation to workers where the employment is in a remote location, or it is unrealistic to expect workers to travel daily due to distances involved.

You will be considered as providing living accommodation in the following circumstances, whether or not the accommodation is provided by you or a third party:

• the accommodation is provided in connection with the worker’s contract of employment
• the worker’s continued employment is dependent upon occupying particular accommodation
• the worker’s occupation of accommodation is dependent on remaining in a particular job

Even where the provision of accommodation by you and the worker’s employment are not dependent upon each other, you may still be considered to be providing living accommodation if one of the following applies:

• you are the worker’s landlord either because you own the property or because you are subletting the property
• you and the landlord are part of the same group of companies or are companies trading in association
• your and the landlord’s businesses have the same owner, or business partners, directors or shareholders in common
• you or an owner, business partner, member, shareholder or director of your business receives a monetary payment and/or some other benefit from the third party acting as landlord to the workers

For the purposes of the accommodation offset rules, third parties will include:

• businesses and companies, which are separate legal entities to you
• individuals including those who are family members of a director, business partner, shareholder, member or owner of the employing business;
• businesses or companies with a director, shareholder, member, owner or business partner who is a family member of a director, shareholder, owner or business partner of the employing business

The accommodation offset will apply whenever you are providing living accommodation, regardless of whether the worker can choose whether or not to occupy the accommodation. Even if the provision of living accommodation is optional, where the worker chooses to accept the offer, the accommodation offset will apply.

Treatment of absences and time work

If a worker is paid solely according to the number of hours they work, the work is time work. When a time worker is absent from work, special rules about the accommodation offset may apply.

These special rules apply when a time worker has been absent from work and the following all apply:

• you are charging for living accommodation by making a deduction from the worker’s pay or accepting payment from the worker
• the time worker has been absent from work for a day or more in a pay reference period, for example because they have been sick or taken holiday
• the worker has been paid at least the minimum wage for the hours for which they have been absent
• the hours the worker actually works are less than they would normally be in the pay reference period because of the absence
• the deduction or charge you make for living accommodation does not increase because of the worker’s absence from work

If the above conditions apply, the deduction or payment for living accommodation has to be adjusted before applying the accommodation offset by:

• multiplying the deduction or payment by the number of hours the worker actually worked
• dividing that total by the total number of hours the worker would have worked, including any hours they actually worked, if they had not been absent

Only the amount of the adjusted deduction or payment which exceeds the accommodation offset will reduce the worker’s minimum wage pay.

When you make a deduction from a worker's pay, it will reduce minimum wage pay if it is for expenditure connected with the employment or if it is for your use and benefit.

Deductions that don't reduce minimum wage pay

However the following deductions from workers' pay and payments by workers connected with their employment do not reduce their minimum wage pay:

• Deductions of income tax and National Insurance contributions (NICs).
• Deductions for student loans.
• Deductions from pay allowed under the worker’s contract which relate to misconduct or a related matter such as negligence, or payment by the worker of a specific penalty or in respect of ‘any other event’ for which the worker is responsible and contractually liable. Where the deduction or payment is not in respect of the worker’s misconduct but for another matter, this matter must have some relationship to the voluntary conduct of the worker. If you amend a worker’s contract (which must be done lawfully) to include a previously omitted entry relating to misconduct – the new entry may only be applied to misconduct events taking place after the amendment was made.
• Deductions from pay or payment by the worker because of an advance of wages or on account of an advance under an agreement for a loan.
• Deductions from pay or payment by the worker for the purchase of shares, other securities or share option, or any share in a partnership.
• Deduction from pay or payment by the worker to recover an accidental overpayment of wages.
• Deductions from pay that are not for expenditure connected to the worker’s employment or for your own use and benefit. See deductions not connected to a worker's employment or for the employer's own benefit.
• Voluntary payments by the worker for the purchase of goods and services from you – for example payments for meals the worker has freely chosen to buy in the staff canteen (however, if you deduct money from the worker’s pay in these circumstances this will reduce minimum wage pay).
• Certain deductions from pay and payments by the worker for accommodation if the charge for the accommodation is at or below a certain level.

The working hours that apply for minimum wage purposes depend on the type of work being performed - whether they are salaried, time, output or unmeasured workers.

If a worker does different types of work for you or for different employers the rules and calculation of hours apply differently for each type of work that the worker does.

Time and salaried work

The hours of work that count for minimum wage purposes for time and salaried work includes any time when a worker is:

• at the workplace working - excluding the length of their rest breaks and any payment for these
• at work and required to be available for work - it makes no difference whether or not you actually provide work for that time
• required to be available for work either on standby or on-call at or near their workplace - however there is an exception if the worker is permitted to sleep during this time and is provided with sleeping facilities - see minimum wage working hours - sleeping between duties
• time spent travelling on business - see National Minimum Wage and Living Wage - time spent travelling on business

Output work

The hours of work that count for minimum wage purposes for output work include any:

• time spent travelling on business - see National Minimum Wage and Living Wage - time spent travelling on business
• hours specified in a 'fair estimate' agreement or time actually worked
• if the worker works from home, time travelling from home to other work premises

Unmeasured work

The hours of work that count for minimum wage purposes for unmeasured work include:

• time spent travelling on business - more information on time spent travelling, see National Minimum Wage and Living Wage - time spent travelling on business
• hours specified in 'daily average' agreement or time actually worked
• if the worker works from home, time travelling from home to other work premises

For full details see .

You may allow workers who are performing time work to sleep at or near their place of work and provide them with sleeping facilities.

They are not entitled to the minimum wage while they are on standby or on call and are asleep or entitled to sleep.

However, you must pay them the minimum wage in respect of any time during which they are awake for work.

You do not have to pay a worker the minimum wage for the time when a worker can sleep and is not working. However, if they have to get up and work, the time spent awake when they are getting ready for work and working is time for which the minimum wage is.

If you provide sleeping facilities make sure your arrangement clearly sets out when the worker can sleep. If your arrangement does not clearly specify any sleeping time, it is likely you will have to pay the minimum wage for the full-time when the worker is at the workplace - including the time when they are asleep.

Each case may be different. If you are unsure about the arrangements you have in relation to the minimum wage you can contact the Acas Helpline on 0300 123 1100.

Example scenario: On site sleeping arrangements

You employ a care assistant (who is doing time work) at a residential care home and give them on-site sleeping accommodation. They are required to work five days per week, 24 hours on-site. They can rest during the hours of 8pm to 8am unless required to care for a resident. While working their 24-hour shift they must remain on the premises.

You must pay the worker at least the minimum wage for the period 8am to 8pm and for any additional time worked in the hours 8pm to 8am.

If the worker is required to attend to a resident during their rest time, you must pay them at least the minimum wage for the period they are awake for working purposes - for example, this includes the time they spend getting dressed to prepare for work. If they are attending to a resident during the night and are awake from 2am to 3am for this purpose, they are entitled to the minimum wage.

However, if their contract states they are employed five days per week, 24 hours on-site without specifying the periods when they are entitled to sleep while working a 24-hour shift they must remain on the premises.

The whole of these 120 hours is included in their basic hours. They are entitled to the minimum wage for the whole of the 24-hour shift as they are at work for the whole period that they are on site.

Read full details on .

Time spent travelling between home and someone's normal place of work and back again does not count as the time when the minimum wage is payable.

However, there are some periods of travelling time when the minimum wage must be paid to a time or salaried hours worker. These include times when the worker is:

• required to travel in connection with their work - and rest breaks are taken during the time the worker is travelling count as time worked - for example lunch on board a train
• waiting for a train or changing trains or other forms of transport - except during rest breaks
• travelling from one work assignment to another - except for rest breaks
• waiting to either collect goods, meet someone in connection with work or start a job
• travelling from work to training venues - travel between their home and the training venue does not count
• time spent training for their work - either at the workplace or somewhere else - this also applies to workers required to undertake training before starting to work for you

For full details, see .

If you did not pay a worker the minimum wage when they were entitled to it, they are entitled to have any arrears repaid according to a formula using current minimum wage rates.

This means workers will be due more arrears than they were originally underpaid if current minimum wage rates are higher than the minimum wage rates that applied at the time of the underpayment.

Minimum wage rate you must use

The current minimum wage rate is the rate for the age band that applied to the worker at the time of the underpayment. For example, a worker who was eligible for the 16 to the 17-year-old rate at the time of the underpayment will now be entitled to be repaid arrears using the current 16 to 17-year-old rate - even if they are now 19 years old.

For the current minimum wage rates see National Minimum Wage and National Living Wage rates.

Calculation formula to pay minimum wage arrears

If you need to calculate and pay minimum wage arrears, you should use the following formula:

• underpayment - work out the amount of the original underpayment in the pay reference period
• original minimum wage rate - divide the underpayment by the minimum wage rate which applied at the time of the underpayment
• current minimum wage rate - multiply the figure you get by the current minimum wage rate

In summary the formula is:

The worker will be entitled to the higher of either:

• the amount they were actually underpaid
• the amount calculated using the formula

See example calculation for minimum wage arrears.

If the current corresponding minimum wage rate is higher than the original rate for the pay reference period in which the worker was underpaid, the arrears will always be higher than the amount originally underpaid.

Use the National Minimum Wage and National Living Wage calculator.

Changes in minimum wage rates after making arrears calculations

If minimum wage rates change between the date you calculate the arrears and the date that a worker is repaid the arrears, you will need to redo the calculation with the most recent minimum wage rate.

The below example demonstrates how the minimum wage arrears formula can be applied to work out what arrears a worker is entitled to.

Example minimum wage arrears calculation

A 45-year-old worker was paid £250 for 35 hours worked in the pay reference period 1 December 2023 to 8 December 2023. The arrears are calculated in April 2024.

The minimum wage rates for the relevant periods are:

• £9.50 for the pay reference period 1 December 2023 to 8 December 2023
• £11.44 for April 2024

1. Work out the minimum amount the worker should have been paid in the pay reference period and identify the size of the underpayment.

• Multiply the correct rate during the period of the underpayment by the hours worked: £9.50 x 35 = £332.50.
• Deduct the amount the worker was paid: £332.50 - £250 = £82.50 underpayment.

2. Divide the underpayment by the minimum wage rate which applied at the time of the underpayment and multiply it by the current rate.

£82.50 ÷ £9.50 x £11.44 = £99.35

The worker is entitled to £99.35 in arrears.

Calculating arrears with the change of age band

On 1 April 2021, the age bands for the minimum wage rates changed, with workers aged 23 years old and over entitled to the National Living Wage. Where arrears are being calculated for a pay reference period starting on or after 1 April 2021 for someone who was aged 23 years old or over at the time, the current minimum wage rate which should be used is the National Living Wage rate for workers aged 23 years old and over. Where arrears are being calculated for earlier pay reference periods, the minimum wage rate to be used for those aged 23 and 24 years is the National Minimum Wage rate.