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

What counts as minimum wage pay

Guide

When working out minimum wage pay the starting point is the worker's total pay in a pay reference period, see National Minimum Wage and Living Wage pay reference period - ie the pay received by the worker before the deduction of income tax and National Insurance contributions.

Incentive pay

Incentive payments count towards minimum wage pay if they relate solely to the performance of a worker and are made as part of an incentive, sales commission, merit or any performance-related pay scheme.

Bonuses

Bonus payments count towards minimum wage pay. For an explanation of how bonuses should be allocated to different pay reference periods, see National Minimum Wage and Living Wage pay reference periods - bonuses.

Pay that doesn't count as minimum wage pay

Total pay for minimum wage purposes excludes payments that are:

  • loans
  • advances of wages
  • pension payments
  • lump sums on retirement
  • redundancy payments
  • rewards under staff suggestions schemes

Since 1 October 2009, tips, gratuities, service charges and cover charges no longer count towards minimum wage pay. This is regardless of whether they are paid through your payroll or are given direct to workers by customers. See commission, bonuses, tips and gratuities.

Benefits in kind also do not count towards minimum wage pay (even if they have a monetary value) - but note the special rules for employer provided accommodation. See National Minimum Wage and Living Wage - benefits in kind.

Other amounts reduce the total minimum wage pay:

  • money paid by the employer to the worker in respect of tips, gratuities, service charges and cover charges from customers (but see below)
  • the premium element of pay for work paid for at a rate higher than the worker's standard pay rate
  • allowances other than those linked to performance
  • payments to reimburse expenses
  • some payments in respect of absences