Regulations covering minimum wages and statutory pay apply to almost every business.
You need to ensure that you are paying at least the national minimum wage or national living wage. You also need to understand employees' entitlements to statutory pay when they have children or are off work sick.
1. The minimum wage
Almost all workers are entitled to be paid at least the national minimum wage (NMW)
This includes freelance and temporary workers. The hourly rates are:
- the national living wage (NLW) of £8.21 for employees aged over 25;
- £7.70 for those aged between 21 and 25;
- £6.15 for those aged 18 to 20;
- £4.35 for those aged 16 and 17 (except apprentices);
- £3.90 for apprentices aged under 19, or over 19 but in the first year of an apprenticeship.
Minimum wage levels tend to increase over time
- The Government has announced that the rates of NLW and NMW will increase to £8.21, £7.70, £6.15, £4.35 and £3.90 respectively from April 2019.
- The Government has pledged to increase the NLW to £9.00 per hour by 2020.
Average pay must be at or above the minimum wage for each 'pay reference period'
- The reference period is the worker's actual pay period, up to a maximum of a month.
- Premium payments (eg overtime at time-and-a-half) cannot be included when calculating the minimum wage. Only the standard hourly rate can be counted.
Hours worked depend on the type of work the worker does
- For waged workers, the hours are usually clearly stated.
- For salaried workers, hours are usually a set number of basic hours per year.
- Travel time between home and the first and last client of the day now counts as working time for employees with no fixed place of work (such as care workers who work in clients' homes). You should check if this impacts the hours, rest periods and pay of any of your workers.
Special rules apply to workers who sleep on the premises
- They do not normally need to be paid the minimum wage for any period when they are not actually working.
- The employment contract must clearly set out the period when the worker is permitted to sleep, and the employer must provide suitable sleeping facilities.
The value of most perks cannot be included when calculating NMW and NLW
- The value of free accommodation can be included, but only up to a value of £52.85 a week.
- The value of perks which can be freely exchanged for money, goods or services is included (eg incentives and bonuses).
- Tips do not count, unless collected by the employer and paid through the normal pay system.
There is no opt out from the NMW and NLW
- Workers cannot agree to be paid less.
- Workers must be paid the correct rate, no matter how poor their performance is.
- Dismissing a worker to avoid paying the correct rate is automatically unfair.
- Company directors who are also workers (for example, with an employment contract) must be paid the NMW or NLW.
You must keep adequate records to prove you are paying the correct rates
- If workers suspect they are underpaid, they can request, inspect and copy any records to establish whether they are or not.
- You must respond within 14 days.
- Records don't have to be kept in a specific format. If most of your employees are paid well above the minimum wage, your PAYE records may be sufficient.
- In case of dispute, you will have to prove that you have paid NMW or NLW.
The NMW and NLW are enforced by HM Revenue & Customs (HMRC)
- HMRC can demand records, enter premises and interview employees.
- It may detect breaches in your PAYE returns.
- Failing to keep adequate records, keeping false records, and obstructing an enforcement officer are all separate criminal offences. You could be liable to a penalty of up to £20,000 for any of these offences.
- Employers that breach the minimum wage have to pay arrears within 14 days and a penalty equal to 200% of the unpaid wages (100% of the unpaid wages for pay periods which began before 1 April 2016) up to a maximum of £20,000 per worker.
- If the employer still fails to pay, they risk prosecution and an additional fine.
2. Maternity pay
Many women on ordinary maternity leave are entitled to statutory maternity pay (SMP).
This is treated as income and standard rates of SMP are paid net of income tax and National Insurance contributions (NICs).
There are qualifying conditions for SMP
- A woman must have completed 26 weeks' service by the end of the 15th week before the week the baby is due. This is known as the 'qualifying week'.
- She must earn at least £118 per week in the eight weeks up to and including the qualifying week.
- She must still be pregnant, or have had her baby, by the 11th week before the expected week of childbirth.
- She must have stopped working, or taken ordinary maternity leave.
- She must have provided evidence of the expected date of birth.
There are two rates of SMP
- SMP is equal to 90% of her average weekly earnings if more than £146.68 per week, for the first six weeks.
- It is then paid at £146.68 per week or 90% of her average earnings if lower for up to 33 more weeks. These rates are not increased in the case of multiple births.
- SMP has to be recalculated if a pay rise takes effect during maternity leave.
Employees not entitled to SMP may qualify for maternity allowance
- See Maternity allowance.
Employers are compensated for making statutory payments to new parents
- Small businesses can claim back 103% if their total annual combined NI payments is £45,000 or less.
- Larger employers can reclaim 92% of the gross amounts paid.
- Amounts are claimed back by making deductions from the NICs payable to HMRC.
- You must maintain detailed records and keep them for at least three years.
SMP stops if the employee is taken into custody or dies
Mothers can work for ten days during maternity leave (known as 'keeping in touch days') without it affecting their right to SMP.
Some employers offer enhanced maternity pay to some of their female employees
3. Maternity allowance
Women who do not qualify for SMP may qualify for maternity allowance (MA)
- Eligibility is based on the woman's recent employment and earnings record. Both self-employed and recently employed women may qualify.
- These include women who earn between £30 and the lower earnings limit a week and have been employed (or self-employed) for at least 26 weeks of the 66 weeks ending with the week before the expected week of childbirth.
MA is paid for a maximum of 39 weeks
- MA is usually paid at £146.68 per week or 90% of average weekly pay if lower.
- Maternity allowance (MA) is paid by Jobcentre Plus.
4. Paternity pay
Employees entitled to paternity leave may be entitled to statutory paternity pay (SPP)
- The employee must be the father, mother's partner, adopter or prospective parent.
- To qualify for leave they must have at least 26 weeks' service by the qualifying week. They must be taking time off to look after the child.
- To qualify for SPP they must also earn at least £118 per week and be employed up to the child's birth date.
SPP is for either one or two consecutive weeks as specified by the employee
- Paternity leave must be taken within 56 days of the birth or expected date of birth if the child is born early.
- The rate of SPP is £146.68 per week or 90% of average pay, if lower.
- Employers can claim back the SPP by making deductions from their NIC payments.
Fathers, partners and parents have the right to attend up to two ante-natal appointments
- The time off work can be unpaid.
5. Adoption pay
Adoption leave and statutory adoption pay (SAP) is available to employees who adopt
- It is available to one member of a couple where the couple adopt jointly.
- SAP is paid at £146.68 a week or 90% of average pay if lower for up to 39 weeks.
- Adopters with average weekly earnings below £118 do not qualify for SAP.
- Employers can recover the SAP paid by offsetting the amount against NICs.
- Any additional adoption leave - including time off to attend ante-natal appointments - is unpaid.
Only one member of a couple is entitled to adoption leave and SAP
- Where a couple adopt jointly, or the adopter has a spouse or partner, the other member of the couple may be entitled to paternity leave and pay.
6. Shared parental leave and pay
Eligible employees can take shared parental leave (SPL) and shared parental pay (ShPP)
- This applies if they, or their partner, end their maternity or adoption leave or pay early and return to work.
- New mothers must take at least two weeks off work following the birth of the child (four weeks for factory workers). If the mother qualifies, she can then share the remaining leave and pay as SPL and ShPP (up to 50 weeks' leave and 37 weeks' pay).
- To qualify for ShPP, your employee must qualify for either statutory maternity or statutory adoption pay, or for statutory paternity pay and have a partner that qualifies for statutory maternity pay or maternity allowance or statutory paternity pay.
- ShPP is £146.68 a week or 90% of average pay if lower.
- Employees must provide you with written notice of their entitlement to SPL and confirmation that they are sharing their entitlement with their partner.
- The mother or adopter must give eight weeks' notice of the date they plan to end their maternity or adoption pay or maternity allowance.
- As with SMP, SPP and SAP, employers can recover the amount of ShPP paid by offsetting the amount against NICs.
Employees are entitled to take up to three separate blocks of leave
- You can agree to split leave into shorter blocks providing they are at least a week long.
- You cannot refuse to allow an employee to take a block of leave if they qualify and have provided the correct notice.
- Employees can take leave at the same time as their partner or separately.
- The mother or adopter can change their mind if they haven't already returned to work or the planned start date hasn't passed.
- Employees can work up to 20 days during SPL as shared parental leave in touch days without it effecting their entitlement to SPL and ShPP.
7. Statutory sick pay
A worker who is unable to work because of sickness may qualify for statutory sick pay (SSP)
- The worker must be sick for at least four or more days in a row (including weekends and bank holidays) and have earnings over £118 per week.
- There is no qualifying length of service or minimum number of hours a week. Workers may be entitled to SSP from their first day of employment.
- SSP is paid at a flat rate of £94.25 a week, for up to a maximum of 28 weeks.
Workers become entitled to SSP from the fourth 'qualifying day' of sickness
- A qualifying day is any day the worker would normally work.
- In practice, this means there are usually three clear days before SSP is payable in any 'period of incapacity for work' (PIW).
- If the worker is sick on a weekend day or a Bank Holiday or any other non-working day this counts towards the four-day PIW, but is not a 'qualifying day'.
- Employers must issue form SSP1 by the end of the 23rd week to let the worker know when SSP will be ending.
You can ask for evidence that a worker is unfit for work
- This will usually be a note from their doctor.
- For the first seven days of sickness, a worker must fill in a self-certificate or form SC2 which can be obtained from a GP.
Special rules apply for illness during and after pregnancy
- If a worker is sick with a pregnancy-related illness in the four weeks before her baby is due, SSP will stop and SMP or MA will start automatically.
- If she is entitled to SMP or MA, she cannot receive SSP for 26 weeks starting with the day of entitlement to those payments.
- If she is not entitled to SMP or MA, she cannot receive SSP for 18 weeks starting with the Sunday of the week her baby is born, or the Sunday of the week she is sick from work for a pregnancy-related illness.
You may be able to withhold SSP
You can do this if the worker:
- has recently drawn a state benefit;
- is held in custody.
Employers must keep full records of SSP
- Records must be kept for three years.
- Failure to do so can lead to a £1,000 fine.
- Get up-to-date information, support and advice from Acas (0300 123 1100).
- Get advice on the national minimum wage from HMRC (0800 917 2368).
- Find guidance on statutory leave and pay on GOV.UK or contact the HMRC employers' helpline (0300 200 3200).
- Ask an employee to complete a statement of sickness using form SC2 online.
- Find guidance on reducing sickness absence on Fit for Work.
Employment law is complex and is changing rapidly. This factsheet reflects our understanding of the basic legal position as known at the last update. Obtain legal advice on your own specific circumstances and check whether any relevant rules have changed.