How the National Minimum Wage is calculated

There are different methods of calculating the hourly rate of pay for the purposes of the NMW, depending whether a worker is paid:

• a salary;

• according to hours worked (time work);

• according to output (piece work); or

• unmeasured work (work that is neither salaried nor output work, but where there are no specified hours and the worker is required to work when needed or when work is available).

The period of time for which the NMW is calculated is called the pay reference period. This is either a month or any shorter period used to calculate the worker’s pay, such as weekly.

Under the NMW regulations, hourly-paid workers do “time work”. In other words, their pay is calculated by reference to the actual hours they work (regulation 20 NMWR 99). Hourly-paid workers must be paid at least the NMW for all the hours they are contracted to work (regulation 14 NMWR 99).

Rest breaks are not time work. There is no right to pay for rest breaks under the NMWR (regulation 15(7) NMWR 99). Some workers will have a separate contractual right to paid rest breaks.

Workers who do unmeasured work must be paid the NMW for all the hours they spend during the pay reference period carrying out their contractual duties (regulation 27 NMWR 99) unless there is a daily average agreement in place (regulation 28 NMWR 99).

A daily average agreement is a written agreement between worker and employer setting out the average daily number of hours the worker is likely to spend each day carrying out the contractual duties. It must be a realistic average and it must have been entered into before the relevant pay reference period.

There is a risk of the right to the NMW being diluted in some cases by daily average agreements. The Court of Appeal upheld this practice in the following case, which involved a care worker who performed a continuous 24-hour shift looking after one service user, and who was not required to perform tasks on a continuous basis: