Which elements of pay count for the purposes of calculating whether or not the national minimum wage has been paid?

When determining whether or not a worker has been paid at least the national minimum wage, the employer must calculate the remuneration that the employee has received over the pay reference period (eg one month if the worker is paid monthly, or one week if paid weekly). Remuneration for these purposes is the worker's gross pay, including any bonus, commission or other incentive pay received.

If a worker has received an annual bonus during the pay reference period, most of that bonus will count towards that pay reference period but some can be allocated to the previous period. For example, if an annual bonus is paid in December's pay run, most of the bonus should be counted towards the December pay reference period (assuming that the worker is paid monthly) but one-twelfth of the bonus can be counted towards the pay received in November, the previous pay reference period.

Pay given up under a salary-sacrifice scheme does not count towards the minimum wage entitlement. A worker's pay must not fall below the relevant national minimum wage rate after a salary sacrifice has been applied.

Where deductions for expenses in connection with the worker's employment are made, such as those for uniform or tools, this must not bring the worker's pay below the minimum rate.

Elements of pay that must not be included when calculating remuneration are:

  • benefits in kind (except limited costs of accommodation provided as part of the job);
  • overtime and shift premiums;
  • allowances (other than allowances attributable to the performance of the worker in carrying out his or her work);
  • tips, service charges, gratuities and cover charges;
  • repayments of expenses;
  • loans by the employer and advances of wages; and
  • employer pension payments.

The method of calculating pay is the same for an employee who qualifies for the national living wage, the new statutory minimum wage rate that must be paid to workers aged 25 and over from 1 April 2016.