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

The below example demonstrates how the minimum wage arrears formula can be applied to work out what arrears a worker is entitled to.

It is December 2010. You paid a 45-year-old time worker £200 for 40 hours worked in the pay reference period 1 August 2010 to 7 August 2010.

In December 2010, you realise the worker had been underpaid and you need to calculate minimum wage arrears.

The main minimum wage rates for the relevant periods were:

• £5.80 for the pay reference period 1 August 2010 to 7 August 2010
• £5.93 for pay reference periods starting between 1 October 2010 and 30 September 2011

You need to calculate the worker's arrears by finding the higher of:

• the underpayment, ie the difference between the amount the employer should have paid at the time and the amount actually paid
• the amount is calculated using the arrears formula

Steps to take to calculate minimum wage arrears

Step 1: Multiply the correct rate during the underpayment pay reference period by the hours worked

£5.80 x 40 = £232.

Step 2: Subtract the amount you paid the worker from the amount they should have been paid in step 1

£232 - £200 = £32 underpayment.

Step 3: Divide the underpayment by the minimum wage rate which applied at the time of the underpayment and multiply by the December 2010 minimum wage rate:

(£32 ÷ £5.80) x £5.93 = £32.72.

The worker is entitled to £32.72 in arrears - which is the higher amount from the two calculations.