How the National Minimum Wage is calculated

There are different methods of calculating the hourly rate of pay for the purposes of the National Minimum Wage, depending whether the worker is paid a salary, paid according to hours worked, paid according to output (piece work) or does unmeasured work (involving specific tasks but no set times).

Hours when a worker is available for work but not actually working may amount to working time for the purposes of the minimum wage, but the position is not always straightforward. The cases distinguish between workers who are “working” simply by being present at the employer’s premises (e.g. a night watchman), where the worker’s presence is a core part of the role (whether or not sleeping accommodation is provided), and workers who are given sleeping accommodation and are “on call”.

A worker whose presence on site is a core part of the job is entitled to be paid for all the hours when they are required to be at the premises, because they are working throughout this time. For example, in Scottbridge Construction v Wright ([2003] IRLR 21), a night watchman was entitled to the minimum wage for the whole night shift, even though he could read, watch television or sleep when not on patrol. Similarly, in British Nursing Association v Inland Revenue ([2002] IRLR 480), workers working in their own homes during the night answering telephone enquiries had the right to be paid the minimum wage throughout their shift. It did not matter that they could do other things when not answering the phone, or that they might not get many calls.

By contrast, a worker given sleeping accommodation and expected to be on call is entitled to be paid the minimum wage for only those hours when s/he is “awake for the purpose of working” (regulations 15(1A) and 16(1A) of the National Minimum Wage Regulations).

It is a common mistake for workers “on call” during the night to confuse the requirements of the National Minimum Wage Regulations with those of the Working Time Regulations (see Working hours and breaks, below). Time spent on call but sleeping might well be “working time” for the purposes of the Working Time Directive, but this is a completely separate issue from the question whether the National Minimum Wage must be paid for hours spent sleeping (see, for example, South Manchester Abbeyfield v Hopkins [2011] ICR 254).

An employer is entitled to come to an agreement with a worker who does “unmeasured time”, specifying the number of hours to be paid, taking into account the duties performed, as long as this is a “realistic average”. In Walton v Independent Living Organisation Ltd ([2003] IRLR 469), the Court of Appeal held that a carer providing 24-hour cover did not have to be paid for all those hours. Although she had to be available for the whole 24-hour period, in practice she was only required to assist her client for around six-and-a-half hours a day, and an agreement to that effect had been made between them. The Court held that payment should be based on those hours.

A worker’s basic pay must comply with the minimum wage. That basic pay may then be used to produce an “enhanced” rate for different shifts, for example “time-and-a-half”. However, this “enhanced” rate cannot be used as a basis for working out whether the minimum wage is being paid, even if a worker never receives only basic pay and always receives the enhanced rate.

For example, in Hamilton House Medical Ltd v Hillier (UKEAT/0246/09), Ms Hillier worked as a care worker. Her basic pay rate was below the minimum wage. However, she was paid “time-and-a-third” for weekday nights and “time-and-two-thirds” for weekend nights. As she almost always worked nights, her average hourly pay was above the minimum wage. Even so, since her basic rate of pay was below the minimum wage, the regulations had been breached.

Following a successful union and media campaign, restaurant and bar employers are no longer able to make up their pay to the minimum wage using customers’ tips (regulation 5, National Minimum Wage 1999 (Amendment) Regulations 2009).

Workers working at home and paid according to what they produce (piece workers) have the right to a minimum fair piece rate of 120% of the National Minimum Wage. Guidance on calculating the minimum wage for output based piece workers can be found at the Gov UK webpage: Minimum Wage for Different Types of Work: www.gov.uk/minimum-wage-different-types-work/paid-per-task-or-piece-of-work-done