National Minimum Wage

Is this relevant to me?

The national minimum wage came into effect on 1 April 1999. It is relevant to all accommodation providers that have people working for them, however small their accommodation business. The national minimum wage is enforceable by HM Revenue and Customs (HMRC).

If HMRC find that you have underpaid any of your staff, they can issue a Notice of Underpayment requiring the employer to repay arrears to their staff (paid at the current minimum wage rate) and pay a penalty to the Government. The penalty will be set at 50% of the total underpayment with a minimum of £100 and a maximum of £5000.

back to top

Who is entitled to the National Minimum Wage

Anyone working for you (including part-time and casual staff) is entitled to receive the minimum wage except:

• anyone 'genuinely self-employed' (eg someone who controls his own time, what work he does, and invoices you rather than receiving wages)
• apprentices under the age of 19 and apprentices over 19 in their first year
• voluntary workers
• workers who are based permanently outside the UK or who are based in the Channel Islands or the Isle of Man.

back to top

What is the National Minimum Wage?

There are three rates of national minimum wage. Rates as of 1 October 2011 are:

• main (adult) rate is £6.08 per hour for workers aged 21 and over
• development rate for 18-20 year old workers is £4.98 per hour
• development rate for 16-17 year old workers is £3.68 per hour

Note!The adult rate will increase 11p to £6.19 per hour on 1 October 2012. However, the two development rates will remain at their current levels.

Apprentice minimum wage

Government accepted a recommendation from the Low Pay Commission to introduce an apprentice minimum wage of £2.60 per hour. This minimum wage will apply to

• apprentices under 19
• apprentices aged 19 or over but who are still in their first year of apprenticeship.

What counts as part of a wage?

• Included. In addition to basic pay, certain other payments may count towards the national minimum wage, including:
  • bonuses
  • incentives
  • accommodation
  • money for items such as clothing and shoes where the worker can decide where to buy the items.
• Excluded. Other additional payments are excluded, including:
  • premium payments for overtime of shift work
  • special allowances
  • expenses
  • tips, service charges or any other type of gratuity (see Tips and service charges below)
  • expenditure on items such as clothing and tools related to work
  • all benefits in kind, including meals, except accommodation.

Accommodation offset

If you provide accommodation to a member of staff, you are entitled to offset an amount for this against the national minimum wage. The daily rate of the accommodation offset is £4.73 (£33.11 per week) for each day that accommodation is provided. For advice call the Pay and Work Rights Helpline on 0800 917 2368 or consult the Employment section of the Government Direct website http://www.direct.gov.uk>

back to top

Does the National Minimum Wage apply to rest breaks, sick time and holidays?

Whether or not you have to pay the national minimum wage for hours taken as rest breaks, sick time, holidays, etc will depend on the type of work the worker is doing. In the accommodation section, the two most applicable types are:

• time work: when you pay the worker according to the number of hours he/she works
• salaried hours work: when the workers have a contract to work a set number of hours each year in return for an annual salary paid in instalments.

For advice call the Pay and Work Rights Helpline on 0800 917 2368 or consult the Employment section of the Government Direct website http://www.direct.gov.uk

back to top

Tips and service charges

Legislation has been introduced that prevents businesses using tips and service charges to constitute part of the national minimum wage. This means that employees must receive at least the national minimum wage as base pay with an income from tips or service charges being in addition to this base pay. This is regardless of whether the gratuity is paid directly by the customer to the employee (eg a cash tip left on the table in a restaurant) or through the payroll (eg a discretionary service charge added to the customer’s bill).

With the introduction of the legislation the Department for Innovation and Skills (DIS) has developed a code of practice for the treatment of tips and service charges by businesses. A Code of Best Practice on Service Charges, Tips, Gratuities and Cover Charges www.bis.gov.uk/files/file52948.pdf has been endorsed by the British Hospitality Association, the Trade Union Congress and the CBI and is based on four principles.

1. That businesses clearly display their policy on tips and service charges for customers.
2. That businesses have a process in place for explaining to customers how charges are distributed and what, if any, deductions are made.
3. That businesses should ensure that staff understand the policy and are able to explain it to customers.
4. That staff are fully informed of the distribution of tips and service charges and any deductions and are consulted on any changes.

How should cash tips be dealt with?

Cash tips are payments given directly by customers to individual employees, not to the business. Any arrangement for sharing cash tips among employees should be in accordance with their wishes. The business owner will not be involved in this process. It is the responsibility of the employees receiving such cash tips to make proper disclosure to HM Revenue and Customs and to account for Income Tax in respect of these earnings.

How should service charges be dealt with?

For gratuities, such as service charges, that are incorporated into the billing system, the business can deduct costs incurred in handling and distributing these payments to employees. Such deductions would cover credit card and banking charges, payroll processing costs, and the average costs of credit card fraud.

Businesses are also able to make reductions associated with other costs including breakages, till shortages and customers leaving without paying. While the level of these costs will vary depending on the nature of the business, DIS guidance suggests that total deductions should not be more than 30% of gratuities received.

These deductions should be revealed to customers as part of the disclosure process.

Where discretionary service charges and non-cash tips are paid to employees by the business, they should be paid from the company bank account, with Income Tax deducted under PAYE. The broad process for distribution of these amounts should be revealed to customers as part of the disclosure process (see below).

What disclosure should be made?

Businesses should disclose to customers how they deal with service charges and non-cash tips, at least by a written note available for inspection at each restaurant and on the company website, if there is one. The disclosure should cover:

• whether an amount is deducted for handling costs (and how much)
• how the remainder is shared between the business and the employees
• the broad process for distribution, for example, that they are shared between the employees in the business through a system controlled by a representative of the employees.

back to top

Records

• You are required to keep sufficient records to prove you are paying the national minimum wage.
• You must allow workers to see their record within 14 days if they make a request in writing.

back to top

Further guidance

• National Minimum Wage Helpline: 0845 6000 678 gives free confidential advice on national minimum wage issues.
• Business link website: for a useful guide to understanding national minimum wage law
• The Employment section of Government Direct http://www.direct.gov.uk provides a comprehensive section on all issues related National Minimum Wage.
• The Code of Best Practice on Service Charges, Tips, Gratuities and Cover Charges is available from the DIS at www.bis.gov.uk/files/file52948.pdf

back to top