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

Calculating National Minimum Wage and Living Wage arrears

Guide

If you did not pay a worker the minimum wage when they were entitled to it, they are entitled to have any arrears repaid according to a formula using current minimum wage rates.

This means workers will be due more arrears than they were originally underpaid if current minimum wage rates are higher than the minimum wage rates that applied at the time of the underpayment.

Minimum wage rate you must use

The current minimum wage rate is the rate for the age band that applied to the worker at the time of the underpayment. For example, a worker who was eligible for the 16 to 17-year-old rate at the time of the underpayment will be now be entitled to be repaid arrears using the current 16 to 17-year-old rate - even if they are now aged 19.

For the current minimum wage rates see National Minimum Wage and National Living Wage rates.

Calculation formula to pay minimum wage arrears

If you need to calculate and pay minimum wage arrears, you should use the following formula:

  • underpayment - work out the amount of the original underpayment in the pay reference period
  • original minimum wage rate - divide the underpayment by the minimum wage rate which applied at the time of the underpayment
  • current minimum wage rate - multiply the figure you get by the current minimum wage rate

In summary the formula is:
Minimum wage arrears = (underpayment ÷ original minimum wage rate) x current minimum wage rate

The worker will be entitled to the higher of either:

  • the amount they were actually underpaid
  • the amount calculated using the formula

See example calculation for minimum wage arrears.

If the current corresponding minimum wage rate is higher than the original rate for the pay reference period in which the worker was underpaid, the arrears will always be higher than the amount originally underpaid.

Use the National Minimum Wage and National Living Wage calculator.

Changes in minimum wage rates after making arrears calculations

If minimum wage rates change between the date you calculate the arrears and the date that a worker is repaid the arrears, you will need to redo the calculation with the most recent minimum wage rate.