A worker’s pay for minimum wage purposes must be calculated in a particular way. The starting point is the worker’s total pay in a pay reference period before income tax and National Insurance contributions are deducted. Then you need to work out which elements of pay count towards minimum wage and those elements that do not count for minimum wage purposes.
What counts as pay for minimum wage purposes?
Elements that do count towards minimum wage are:
- incentive pay
For further details see what counts as minimum wage pay.
What does not count as pay for minimum wage purposes?
Elements that do not count towards minimum wage are:
- advances of wages
- pension payments
- lump sums on retirement
- redundancy payments
- rewards under staff suggestion schemes
- tips, gratuities, service and cover charges
- overtime and shift premia
- different pay rates for different jobs
- payments by an employer to reimburse a worker’s expense
- benefits in kind eg fuel, meals, car, medical insurance, child care vouchers
For those elements that do not count towards the minimum wage you must either not include them at all, such as loans or different pay rates for different jobs, or deduct specific premium amounts eg when paying a higher rate than the standard rate for some work such as overtime.
For further details see pay that does not count towards the minimum wage - overtime and shift rates.
Including payments that do not count as pay for the minimum wage can wrongly appear that you have paid the minimum wage when in fact you have not.
For full details see calculating the minimum wage - GOV.UK guidance.
Minimum wage calculator
You should use the minimum wage calculator for employers to check if you are paying the correct minimum wage or if you owe a payment from the previous year. Employers who discover they’ve paid a worker below the correct minimum wage must pay any arrears immediately.
If you are unsure about any aspect of minimum wage entitlement you can contact the Acas helpline on 0300 123 1100.
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