News and Updates

National Minimum and Living Wage

The NMW has been a legal requirement since 1999 but difficulties still exist in both calculating and enforcing it.  In this article we look at some of these difficulties and developments to combat them.  We also look at the introduction of a new tier of NMW, called the National Living Wage.
Government guidance is available on this complex area and can be viewed here.
On call time
In 2015 the Employment Appeal Tribunal case of Shannon v Clifton House Residential highlighted one of the difficulties in calculation, namely whether time spent on call is time for which a worker should be paid the NMW.
There are specific rules within the NMW legislation that attempt to deal with this.  These rules differ depending on whether the worker is at home or at some other place determined by the employer, and (if the latter) whether the employer has provided the worker with sleeping facilities. These rules are only triggered if the worker is “available for the purposes of working”. However, case law shows that whether a worker is merely “available” or whether they are actually working is a matter of fact that can produce odd results.  Workers have in some cases been held to be working (and therefore entitled to the NMW) while at home, or even while sleeping.  
In the Shannon case, the claimant was an on-call night worker who lived at his place of work and sought to establish that he was entitled to the NMW for all hours of the night when he was on-call.  The EAT held that he was only entitled to NMW for the hours during which he was awake and working.  Note that the result of this case is fact specific.
Tips, gratuities and service charges
Another area which comes in question in relation to NMW is the treatment of tips, gratuities and service charges in the hospitality sector.  The Department for Business, Innovation and Skills (BIS) issued a call for evidence in September 2015 as to how these kinds of payments are collected and what deductions are made from them by the employer.
At present, tips paid in cash to the employee belong to the employee, whereas tips paid to the employer are the property of the employer.  The employer is under no obligation to pay tips that he receives, to his employees.  Tips and gratuities do not count for NMW purposes.
The Government is seeking evidence on how tips work in practice and views on what the Government could do to improve employer practices in this regard.  Whilst there does not appear to be any intention to change the way in which tips are treated for NMW purposes, this study could have an effect, depending on its findings.
On 1 September 2015, BIS announced a package of measures intended to improve compliance with the NMW.  They include:
  • Doubling the penalties for non-payment. Penalties will increase from 100% of arrears to 200% of arrears but will be halved if employers pay within 14 days.  This will be brought into force on 1 April 2016.  The overall maximum penalty of £20,000 per worker remains unchanged.
  • Increasing the budget for enforcement of the NMW. 
  • The establishment of a new HMRC team dedicated to pursuing employers who are not paying the NMW. Its powers will include the imposition of penalties, referring cases for criminal prosecution and naming and shaming the worst-offending employers. 
  • The introduction of a new penalty of disqualification from being a company director for up to 15 years for the non-payment of the NMW.
In addition to the measures detailed above, BIS announced that the government will consult on the introduction of a new offence of aggravated breach of labour market legislation. 
National Living Wage
With effect from 1 April 2016 an additional tier of NMW will be introduced, named the National Living Wage.  From that date, the new NMW tiers will be as follows: 
age 25+ £7.20 per hour  (the National Living Wage)
age 21-25 £6.70 per hour
age 18-21 £5.30 per hour 
under 18 £3.87 per hour
apprentices £3.30 per hour
For further information on the issues raised in this article, please contact us on 020 7925 8080 or by email at

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