National Minimum Wage and National Living Wage - calculating minimum wage pay
Example calculation for minimum wage arrears
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 calculated using the arrears formula
Step 1: Multiply the correct rate during the underpayment pay reference period by the hours worked: £5.80 x 40 = £232.
Step 2: Take away 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.