National Minimum Wage and National Living Wage - calculating minimum wage pay

Most of an annual bonus received in a pay reference period will count only towards the minimum wage pay received in that period. However, a proportion of the bonus - based on your pay reference periods - can count towards pay received in the previous pay reference period.

For example, if you pay an annual bonus in December and the pay reference period is one month, you can count one-twelfth of the bonus towards minimum wage pay in November. The rest of the bonus counts towards minimum wage pay in December.

Example calculation: allocating an annual bonus to a pay reference period

You pay a worker £950 for 152 hours of work per month - all of which counts as minimum wage pay. You pay them a bonus in December of £500 for work performance in the 12 months ending on 31 December.

You should calculate their rate for January - October separately - none of the £500 bonus can count towards minimum wage pay for these months: £950 ÷ 152 hours = £6.25 per hour.

For the November pay reference period you can use a twelfth of the bonus in their minimum wage pay - the proportion that relates to that pay reference period: £500 ÷ 12 months = £41.67.

The worker's total minimum wage payment for November is: £950 + £41.67 = £991.67.

Therefore, the hourly minimum wage pay for November is: £991.67 ÷ 152 hours = £6.52.

For the December pay reference period you can include the remaining total of the bonus: £500 - £41.67 = £458.33.

So the total minimum wage pay is: £950 + £458.33 = £1,408.33.

Therefore, the hourly minimum wage pay for December is: £1,408.33 ÷ 152 hours = £9.27.