New piecework Regulations published

The DTI has issued¹ draft Regulations to amend the National Minimum Wage Regulations 1999 ("the principal Regulations"). These are the draft National Minimum Wage Regulations 1999 (Amendment) Regulations 2004 ("the draft Regulations").

The draft Regulations will amend the principal Regulations to replace the existing system of "fair estimate agreements" that applies to output workers, that is to say, pieceworkers - those paid not for the time they work, but for the piece produced or the task performed.

Previously, provided that - before the work was undertaken - there was a written agreement between the worker and the employer as to what constituted a fair estimate of the hours likely to be spent performing the task, the principal Regulations were satisfied. The estimate was fair if the employer could show that it represented at least four-fifths of the time an average worker would take to perform the task.

The Low Pay Commission has been concerned that pieceworkers are still being paid below the national minimum wage (NMW) and suggested in its Second Report² in June 2001 that the NMW for piecework should be averaged over a pay reference period. The DTI has responded to this suggestion and, in future, a new system called "rated output work" will apply.

Regulation 2 of the draft Regulations substitutes new regs. 24-26 in the principal Regulations for the existing ones. New reg. 24 provides that, unless output work has been rated as such, it will be measured for NMW purposes by the number of hours spent on it by the worker. By new reg. 24(2), rated output work must satisfy the conditions set out in new reg. 25(1) and must be work in respect of which the employer has given the worker a notice that satisfies the requirements of new reg. 25(2).

By new reg. 25(1) (as previously provided in old reg. 24(2)), the work must be work in respect of which the worker's contract does not set any normal minimum or maximum working hours, and the employer must not, in practice, determine or control the hours worked.

However, instead of, as previously, requiring the worker to agree in writing a "fair estimate" of the number of hours the work might take, the employer must now first determine a "mean hourly output rate" for the work. By new reg. 26A, this is to be determined by the employer either conducting a satisfactory test of the speed at which a group of workers can produce the subject piece or perform the subject task in one hour, or by its making a satisfactory estimate of the average speed.

By new reg. 26A(3), an estimate will be satisfactory only if the employer has already tested the average speed and made fair adjustments to it, either in relation to a similar task (new reg. 26(A)(3)(a)), or in relation to the same task being performed in different working circumstances. The guidance says that the thinking here is that this method should be used to set the rates where factory workers and homeworkers are making the same piece.

Having conducted a satisfactory test or made a satisfactory estimate, subsequent changes in the workforce will not require the employer to repeat the exercise unless the changes materially affect the mean hourly output rate (new reg. 26A(4)).

New reg. 25(2) sets out the requirements that the written notice must now fulfil. It must be given to the worker before the work starts but the worker no longer has to sign his or her consent to it. It must contain statements conveying the information set out in new reg. 25(2)(b) as to the following: why the notice is being given; whether the employer has conducted a test or made an estimate in order to arrive at a mean hourly output rate; and what that rate is to be. The worker must also be told on the notice, and have identified for him or her, the telephone number of the NMW helpline. This is a new requirement. All these provisions will come into force from 1 October 2004.

By reg. 3 of the draft Regulations, reg. 26 will be amended further with effect from 6 April 2005, to provide that the number of hours spent by a worker on rated output work will always be treated as being 12% of the number of hours that a worker working at the mean hourly output rate would have taken. The government hopes that, by widening the average rate band in this way, more than 170,000 homeworkers will see their pay increase.

1. Available at www.legislation.hmso.gov.uk/si/si2004/draft/20048731 .

2. Available at www.lowpay.gov.uk.