How the national minimum wage is calculated 



There are different methods of calculating the hourly rate of pay for the purposes of the NMW (regulation 17, NMWR 15), depending whether a worker is paid:


• a salary;



• according to hours worked (time work); 



• according to output (piece work); or



• unmeasured work. This is 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 a “pay reference period”. This is either a month or any shorter period used to calculate the worker’s pay, such as weekly. 



A worker’s basic pay must comply with the NMW. That basic pay can then be used to produce an “enhanced” contractual pay rate for different shifts, for example, “time-and-a-half”. However, the enhanced rate, whether described for example, as a “premium”, “overtime”, “anti-social hours” or “weekend” rate, cannot be used as a basis for working out whether the NMW is being paid, even if the worker never receives only basic pay and always receives the enhanced rate (regulation 10(j), NMWR 15). 



For example, in Hamilton House Medical Ltd v Hillier [2009] UKEAT/0246/09, care worker Ms Hillier’s basic pay rate was below the NMW, but she was paid “time-and-a-third” for weekday nights and “time-and-two-thirds” for weekend nights. Since she almost always worked nights, her average hourly pay was above the NMW. Even so, as her basic rate of pay was below the NMW, the regulations had been breached.



Any attempt to contract out of the NMW is void and has no legal effect (section 49, NMWA 98). This means that any contract term, for example, to repay training fees, is void to the extent that it reduces wages to below the level of the NMW. 



Separate payments and allowances can only be added to pay to make up the NMW if they are “attributable to the performance of the worker in carrying out the work” (regulation 10(k), NMWR 15).


In Aviation & Airport Services Ltd v Bellfield [2000] UKEAT/194/00, an employer who unilaterally consolidated an existing contractual attendance allowance into workers’ basic pay to reach the NMW rate carried out an unlawful deduction of wages and breached the NMW regulations.