National Minimum Wage and National Living Wage - calculating minimum wage pay
Pay that does not count towards the minimum wage - overtime and shift rates
You may pay a worker at a higher rate for some of the work they have done during a pay reference period (PRP), for example:
- working overtime
- weekend or night shifts
- working on bank holidays
- working longer than a certain number of hours
If you do, the amount the higher pay rate exceeds the basic rate - called the premium element - does not count towards minimum wage pay.
Calculating the premium element
To calculate the premium element where the same basic rate applies to all the work done by a worker in a PRP:
Step 1: assume that all the hours worked in the PRP have been paid for at only the basic rate.
Step 2: multiply the number of hours worked by the basic rate.
Step 3: subtract the resulting total from the total of pay actually received for the hours worked.
The remainder does not count towards minimum wage pay.
A 23-year old worker works a basic 20 daytime hours at £6.20 an hour. They work an additional five hours at night from Monday to Friday at a premium rate of £7.00 an hour. They also work four hours overtime on Saturday at a premium rate of £8.50 an hour. To calculate their minimum wage you should:
Step 1: Work out the amount they have been paid above their basic rate:
- £7.00 - £6.20 = £0.80 x 5 hours = £4.00 premium for the night work
- £8.50 - £6.20 = £2.30 x 4 hours = £9.20 premium for the Saturday work
Step 2: Work out the minimum wage pay by taking away the premium element from the total pay:
- Total pay £19.30 (20 hours x £6.20 + 5 hours x £7.00 + 4 hours x £8.50) minus the premium element £13.20 (£4.00 + £9.20) = £6.20
- Divide the minimum wage pay by the hours worked £180.00 / 29 = £6.20
This is lower than the National Living Wage rate of £8.91 an hour (which is the rate for 23 years old and over) and so is not compliant with the minimum wage.
A 30-year old worker works 40 hours a week and is paid £224.00 basic pay (equivalent to £6.10 an hour), but also works 8 hours overtime paid at £7.00 an hour. The total pay for the week is £300.
To calculate minimum wage pay:
Step 1: Work out the amount they have been paid above their basic rate (the premium element). £7.00 - £6.10 = £0.90 x 8 hours = £7.20.
Step 2: Takeaway their premium element from their total pay. £300 - £7.20 = £292.80.
Step 3: Divide their minimum wage pay by the hours they worked. £292.80 ÷ 48 = £6.10.
This does not comply with the National Living Wage rate of £8.91 an hour (which is the rate for 23 years old and over) as the worker is entitled to this. You have to pay them more.
Different pay rates for different jobs
If you pay a worker different basic rates for different jobs or different duties - rather than premium rates for the same job - you need to do separate calculations for the hours worked in each job to calculate minimum wage pay.
For example, a worker works part of the day doing semi-skilled work on a machine and is paid £9.00 an hour but helps clean the factory for another part of the day and is paid £6.95 an hour. There is no premium to subtract in this case.
Some employers pay workers special allowances over and above standard pay. For example, if the worker:
- works in dangerous conditions
- works unsocial hours
- performs special duties over and above a worker's normal duties
- is on call for work
These allowances do not count towards minimum wage pay unless you consolidate them into the worker's standard pay or they relate to the worker's performance.
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