Working hours for which the minimum wage must be paid
An explanation of the types of work and the working hours for which you must pay the minimum wage.
The National Minimum Wage is worked out at an hourly rate, but it applies to all eligible workers even if they are not paid by the hour. This means that, regardless of how a worker is paid or the type of work performed, you still need to work out their equivalent hourly rate to ensure that they are getting at least the minimum wage.
The hours for which you must pay a worker the minimum wage depend on the type of work they perform and therefore whether they are:
- paid an annual salary, under a contract for a basic number of hours each year (known as salaried hours work)
- paid by the hour (known as time work)
- paid by the piece - the number of things they make or the tasks they complete (known as output work)
- paid in any other ways (known as unmeasured work)
On 6 April 2020, the government introduced new rules expanding eligibility for salaried hours work. This guidance follows the new rules.
The rules regarding what counts as ‘working time’ for which the minimum wage is payable apply differently for each type of work. You must therefore correctly determine the type of work that your workers perform as this affects how the rules are applied.
When HMRC investigate employers for NMW, in practice they ‘test’ for work type. They first ‘test’ for salaried hours work. If that does not fit, then they move to time work, and if that does not fit then (unless it is apparent that the work is output work) they move to unmeasured work.
Summary table of factors indicating the type of work performed. The factors are neither definitive nor exhaustive: one worker can be performing more than one type of work under the same contract. For example, a worker may be performing salaried hours work in respect of their basic hours, for which they are paid a monthly salary, and time work in respect of overtime, for which they are paid on an hourly basis.
| The worker … | Salaried hours work (all factors must be met) | Time work (only 1 factor must be met) | Output work (all factors must be met) | Unmeasured work (only 1 factor must be met) |
|---|---|---|---|---|
| Is paid under contract for set number of hours per year | Y | |||
| Is entitled under contract to annual salary for those hours | Y | |||
| Is paid not more often than weekly and not less often than monthly in equal instalments (that is monthly, four-weekly, fortnightly or weekly) OR is paid in monthly instalments that vary but add up to the same amount in each quarter | Y | |||
| Is paid according to the number of hours worked | Y | |||
| Has a contract to do a particular job each week/month and is paid for the hours worked each week / month | Y | |||
| Is paid according to the level of output but required to work for set number of hours per day (or other period) | Y | |||
| Is paid only according to number of things made or tasks performed | Y | |||
| Is free to start and finish work whenever they wish | Y | |||
| Has no set number of hours to work | Y | |||
| Is paid a set amount to do a particular task | Y | |||
| Has a “daily average” agreement of hours | Y |
For salaried hours work, the hours of work that count for minimum wage purposes include:
- time spent at the workplace working (rest breaks may count as working time for minimum wage purposes if provided for by the worker’s contract. In some circumstances, this may include time spent sleeping. See ‘Sleep-in’ shifts
- time spent at the workplace and required to be available for work – it makes no difference whether or not you actually provide work for that time
- time required to be available for work either on standby or on-call at or near their workplace, unless the worker is at home - however there is an exception if the worker is permitted to sleep during this time and is provided with suitable sleeping facilities (See ‘Sleep-in’ shifts)
- time spent travelling on business (see Time spent travelling on business)
- time spent training
For time work (paid by the hour), the hours of work that count for minimum wage purposes include:
- time spent at the workplace working, excluding rest breaks
- time spent at the workplace and required to be available for work – it makes no difference whether or not you actually provide work for that time
- time required to be available for work either on standby or on-call at or near their workplace, unless the worker is at home - however there is an exception if the worker is permitted to sleep during this time and is provided with suitable sleeping facilities (see Sleep in shifts)
- time spent travelling on business, or between clients (see Time spent travelling on business);
- under certain circumstances, time when the worker is asleep (see Sleep in shifts;
- time spent training
The time that does not count as working time for minimum wage purposes includes any time spent:
- away from work – even if you pay them for that time – including rest breaks, holidays, sick leave, maternity/paternity/adoption leave, industrial action
- travelling between home and work (unless the worker works whilst travelling) – regardless of whether the worker has a fixed place of work
Example scenarios
You call a time worker into your factory to help with an urgent order, but the delivery is delayed. While the worker is at the factory and required to be available for work you must pay them at least the minimum wage rate for the time – even though they cannot do any work.
However, if the worker is at home waiting for you to call them into work, you do not have to pay them the minimum wage for the time they are at home. They would only be entitled after they have arrived at work and are working or available for work.
For output work, the hours of work over and above any piece/output rate that count for minimum wage purposes include:
- time spent travelling on business (see Travel time for output workers)
- if the worker works from home, time travelling from home to other work premises
- time spent training
For unmeasured work, where the work does not fit the definitions of salaried work, time work or output work, the hours of work that count for minimum wage purposes include:
- time spent travelling on business (see Time spent travelling on business)
- hours specified in a ‘daily average’ agreement or time actually worked
- time spent training
What is salaried hours work for minimum wage purposes?
Salaried hours work can exist in any sector or occupation. Many office workers, public sector workers and workers at large companies are paid on the basis of a salaried hours contract.
If you employ someone to work only during some parts of the year but you pay them an annual salary in instalments throughout the year then they are a salaried hours worker. For example, school cleaning, catering or caretaking staff are often paid a regular weekly or monthly amount throughout the year, although they work in term time only.
Salaried hours work requires all the following to apply to a worker:
- they are entitled under their contract to be paid for a set basic number of hours in a year
- they are entitled under their contract to an annual salary for those basic hours
- they are not entitled under their contract to any other payment for their basic hours other than the salary, or a performance bonus or salary premium (see below)
- they are paid not more often than weekly and not less often than monthly in equal instalments – for example, monthly, 4-weekly, fortnightly or weekly payments. Alternatively, they can be paid in monthly instalments that vary but add up to the same amount in each quarter.
So long as the instalments remain the same, the fact that workers actually work more hours in some weeks or months and less in others does not prevent them being salaried hours workers.
Some variations in the weekly or monthly instalments are ignored for this purpose, where paying in equal instalments may not be practicable. For example, if the variation results from:
- payment of a performance bonus
- payment of a salary premium, such as for working on a bank holiday
- a pay increase
- pay for working hours in addition to the basic hours, such as separate overtime payments
- the worker starting or leaving part-way through the week or month
Salary premium
A salary premium is an amount of pay in addition to the annual salary or an increase in the rate of pay for particular hours, and is in respect of the worker’s basic hours.
Under rules that came in on 6 April 2020, these payments are compatible with salaried hours work.
The salary premium must be attributable to working:
- at a particular time of the day (such as at night)
- on a particular day (such as a bank holiday)
- at a particular location (such as a different office or outlet)
- in a particular working environment (such as in a freezer)
- within a particular geographical area (such as London)
- on a particular task (such as forklift truck driving)
- subject to a particular responsibility (such as being the only person manning a shop)
A salary premium does not count towards pay for minimum wage purposes. Where the premium is an increase in a rate of pay for particular hours, the amount of the increase does not count for minimum wage pay, but the remaining non-premium amount does count. For example, where the hourly rate is normally £10 per hour, and a premium is added for Sunday working of an additional £5 per hour, only the £10 per hour counts for minimum wage pay.
What is a salaried hours contract?
To be a salaried hours contract, the contract between you and the worker should set out:
- a basic number of hours for which the worker is to be paid (for example 2,000 hours in a year) and
- that the worker is entitled to an annual salary
You do not have to show the total basic hours for a complete year but it is better to do so. However, it must be possible to precisely calculate what the total basic annual number of hours is in relation to the full year.
For example, if a contract sets out a monthly number of hours it is possible to work out the annual total by multiplying by 12. It may be slightly less obvious where a contract states a weekly number of hours, but an employer may use some form of weekly multiplier, such as 52, 52.14 or 52.18 or some other formula to arrive at an annual total. A statement of weekly hours is compatible with salaried hours work but the important thing is the employer must be able to demonstrate how the basic hours for a year have been ascertained.
By way of further example, some workers may undertake flexible working patterns which mean that their actual working hours vary from week to week. In these cases, it should still be possible to calculate their basic annual hours, in which case if they are paid an annual amount (and the other conditions discussed above are met) they will be doing salaried hours work.
Hours that count for minimum wage purposes
Generally, a salaried hours worker is regarded as working for minimum wage purposes if they are:
- at work and required to be at work
- on standby or on-call at or near their place of work, unless they are at home
- kept at their place of work but cannot work, for example because of machine breakdown
- travelling on business
- training or travelling from a workplace to training
Time spent travelling on business
Time spent travelling between home and place of work and back again (meaning commuting) does not count as working time when the minimum wage is payable (unless the worker works whilst travelling, for example on a laptop on a train).
Likewise, travelling from home to a task or assignment will generally not be considered as working time for which the minimum wage is payable. (The Court of Justice of the European Union (CJEU) has ruled that journeys made by workers without a fixed or habitual place of work between their homes and the first and last customer of the day constitute working time for the purposes of the Working Time Directive. Pay is a separate issue and is governed by the contract and minimum wage rules. Employers are not required under minimum wage legislation to pay workers the minimum wage for this time.)
However, there are some periods of travelling which are considered as working time for minimum wage purposes. These include time when the worker is:
- travelling for the purpose of carrying out work
- waiting for a train or changing trains or any other form of transport in connection with work travel
- travelling from one work assignment to another – for example a care worker driving from one client to another between appointments
- waiting to either collect goods, meet someone in connection with work or start a job
- travelling from work to training venues – but travel between the worker’s home and the training venue does not generally count
Any rest breaks taken during travelling are treated the same as any other rest breaks and do not count as working time for minimum wage purposes.
Absences from work
If you pay a salaried worker their normal salary while they are absent from work and this forms a part of their employment contract, the time of the absence counts towards the worker’s time worked for minimum wage purposes. For example, during rest breaks, lunch breaks, holidays, sickness absence or maternity / paternity / adoption leave.
If you have not included pay for these absences as part of the worker’s basic hours under their employment contract (that is, if they are not covered by the annual salary), you do not have to take the hours of absence into account for minimum wage purposes.
For example, suppose a worker is contractually entitled to their full pay of £12 an hour for the first 6 weeks of sick leave and after 6 weeks they are entitled to be paid half-pay of £6 an hour. The hours of absence paid at their full pay rate count as part of their basic contractual hours because you are treating them the same as if they are at work. Once you pay them half-pay for the absence you do not count the time paid at the reduced rate as work time. Also when calculating the minimum wage pay of the salaried hours worker you ignore both the hours of absence and the payment for those hours.
Time that does not count for minimum wage purposes
The only hours that do not count as working time for a salaried hours worker are any of the following:
- hours not worked and paid at less than normal pay (see Absences from work) - for example - if during sick leave you pay them a proportion of their normal salary, Statutory Sick Pay only or nothing
- during unpaid leave - because this time is not part of their basic annual hours in their employment contract
- hours they are taking industrial action - it makes no difference whether the worker remains entitled to full or partial pay under their employment contract
- periods the worker is not working but available for work;
- at or near the workplace when they are allowed to sleep (and a suitable place to sleep is provided) (see Sleep in shifts)
- at home
- hours training where the training is not required by the employer and does not take place at a time when the worker would otherwise be working
- travelling between home and work - regardless of whether the worker has a fixed place of work
Calculating salaried workers’ hours - basic annual hours
If a worker only works up to their basic annual hours, calculating the number of hours they have worked in a particular pay reference period is more straightforward. You calculate the number of salaried hours for each pay reference period by dividing the worker’s basic annual hours by the number of payments in the year. For weekly payments, you should divide the basic hours by 52, for fortnightly payments divide by 26, for 4 weekly payments divide by 13, and for monthly payments divide by 12. For any other length of pay reference period, you need to divide 365 days by the number of days in the pay reference period. You then divide the basic hours by this figure.
If there were any absences in the pay reference period that reduce hours (see Absences from work) these will then need to be subtracted.
For more information where a worker works excess hours or leaves the employment, see below.
Example scenario – monthly pay reference periods
(example uses 2023/2024 rates)
You pay a 23-year-old worker £21,000 a year in regular monthly instalments of £1,750. They have an annual contract to work 1,920 hours in the year (including breaks).
1. Identify their basic annual hours: 1,920.
2. Identify the notional hours in each pay reference period to be paid minimum wage: 1,920 ÷ 12 = 160 hours - you should assume these hours are worked even in months with a longer or shorter number of working days and hours.
3. Calculate whether you have paid them at least the minimum wage rate by dividing their monthly pay by the notional hours: £1,750 ÷ 160 = £10.94.
You are paying them at least the minimum wage rate.
Example scenario – weekly pay reference periods
You pay a 23-year-old worker £14,700 a year in regular weekly instalments of £282.69. Although they work term time only you pay them each week whether they are working or not. They have an annual contract to work 1,400 hours in the year by working 35 weeks of the year for 40 hours.
1. Identify annual hours: 40 hours x 35 weeks = 1,400 hours.
2. Identify the notional hours in pay reference period: 1,400 ÷ 52 = 26.92 hours - you should assume they have worked this both when the worker has done 40 hours during term time and no hours during the holiday.
3. Calculate whether you are paying them at least the minimum wage by dividing their pay by the notional hours in the pay reference period: £282.69 ÷ 26.92 hours = £10.50 an hour.
You are paying them at least the minimum wage rate.
Calculating salaried workers’ hours - excess hours worked
Once a salaried hours worker who is not paid for extra hours has worked for more than their basic annual hours in the calculation year then it is necessary to check that all the excess hours are taken into account when checking that at least the minimum wage rates have been paid.
To start with, you need to work out whether the worker has worked more than their basic hours in the calculation year.
For example, if their contract is to work 2,040 basic hours a year and they do not work any more hours then you don’t need to do any further calculations.
However, once those 2,040 hours have been worked (including any hours that count as basic hours when the worker is absent), the extra unpaid hours will need to be taken into account in the minimum wage calculation to ensure that the worker is not paid less than the minimum wage for the pay reference periods in the remainder of the year.
You must exclude any hours when the worker is engaged in industrial action.
Example calculation
A 19 year old worker earns the 18-20 year old NMW rate of £7.49 per hour. The worker’s calculation year is 1 April to 31 March and their contract specifies basic annual hours of 2,040 for which they are paid £15,279.60 per annum (£1,273.30 per month). The basic hours per month are 170 (2,040 divided by 12).
The worker exceeded their annual contracted basic hours part-way through the February pay reference period. For February and March, the worker remains entitled to receive the £1,273.30 per month, which was the basis of the original contract.
However, in addition, you need to pay them at least the minimum wage for any additional hours worked over and above the contractual basic hours. Please note that the individual calculations to identify the hours to be paid the minimum wage in each pay reference period may not result in exactly the same figure as the total worked in the year. This is caused by a rounding effect due to the variation in the number of days in each calendar month.
Example calculation
1. Identify the actual day when the basic hours are exceeded. In this example, say the worker reached 2,040 basic hours for the calculation year on 11 February.
2. For the 10 days before the basic hours were exceeded, calculate the hours as follows:
- divide 10 days in the pay reference period by 365 days in a full year (include non-working days): 10 ÷ 365 = 0.027
- multiply the annual basic hours (2,040) by the answer above: 2,040 x 0.027 = 55.9 hours
3. Repeat step 2 for the remaining days in the pay reference period after the basic hours were exceeded (in this example 18 days, as it is not a leap year), resulting in 2,040 x 0.049 = 100.6 hours
4. Identify the actual hours worked in February after the basic hours were exceeded - in this example this is the hours worked from 11 February to the end of February, say 70 hours.
5. Add together these 3 sets of hours 55.9 + 100.6 + 70 = 226.5 hours. This is the total number of hours the worker must be paid for February. Therefore, February’s pay for a worker aged 19 must not be less than: 226.5 x £7.49 (18-20 rate) = £1,696.49.
6. Add the (say) 170 excess hours worked in March (all hours worked in March are ‘excess’ hours as the basic hours are reached in February) to the hours already calculated to be paid in the March pay reference period. In this case the total hours to be paid for minimum wage will be 170 (hours worked in March treated as ‘excess hours’) + 170 (basic contractual hours for March, calculated by dividing the 2,040 annual hours by 12) = 340 hours.
7. Therefore March’s pay for a worker aged 19 must not be less than £7.49 x 340 = £2,546.60. The worker is already being paid £1,125 for the month so will be entitled to at least a further £1,421.60 for that month.
Sometimes a worker may work all their basic hours under their annual contract before the end of the calculation year and then work extra hours. Your minimum wage calculation for the remaining pay reference periods in the calculation year must include those extra hours.
You must pay the worker at least the minimum wage for the unpaid excess hours. You must pay the minimum wage for both the pay reference period when the worker first goes into the extra hours and for any remaining pay reference periods in the calculation year.
For example - a worker has an annual contract for 2,040 hours (12 months x 170 hours), with a calculation year running from April to March. They normally work no more than 170 hours a month.
In February they work an extra 20 hours. Anticipating that this will take them above their contractual hours by the end of March, you pay them the 20 extra hours - in addition to their normal monthly pay. In these circumstances, you don’t need to make any further calculation.
However, if you didn’t pay them for the extra 20 hours in February because you were not sure if the hours would take them above their contractual hours in the calculation year you would need to include the hours in the remaining pay reference periods.
Calculation year
A worker’s calculation year depends on how frequently they are paid (e.g. monthly or weekly), unless it is changed by the employer (see Changing the calculation year). For example, with monthly paid workers:
- if they start on the first day of a month, say 1 May, their calculation year will be 1 May to 30 April in the following year while continuing in the same job
- if they start part way through a month, say 15 May, their calculation year will be 15 May to 31 May of the following year and then starting on 1 June and ending on 31 May each subsequent year while continuing in the same job
For workers paid other than monthly (that is, weekly or fortnightly) - for example - if they start on 22 May their calculation year will be 22 May in year 1 until 21 May the following year. It will then start on 22 May each subsequent year while continuing in the same job. This also applies to any worker who is still in a job they started before 1 April 1999, even if they are paid monthly.
Changing the calculation year
Employers can change the calculation year for each of their salaried hours workers. Employers may want to do this to bring their workers under a uniform calculation year to align with other business cycles such as tax, annual leave or accounting years.
An employer may change a worker’s calculation year by written notice to the worker as long as:
- they give at least 3 months’ notice of the new calculation year, and include an explanation of the effect of the change. There is no upper limit on how much notice the employer can give
- they do not receive a written objection from the worker before the first day of the new calculation year (it is good practice for employers to acknowledge receipt of any such objection, but not a requirement under the law). Where a worker makes a written objection, their calculation year remains unchanged. An employer may give a further notice to the worker whenever they wish (providing they always give at least 3 months’ notice), which the worker may of course also object to if they wish
- the worker’s calculation year has not previously been changed within the period of 6 years ending with the first day of the proposed new calculation year
- they do not make any deductions from wages or require the worker to make a payment or work additional hours as a result of the change
These requirements do not apply (apart from the final one) for new joiners. Specifically, where on the day the new calculation year begins the worker has been employed for less than 3 months, the employer can give written notice and need only comply with the final bullet point above (namely, the employer must not make any deductions from wages or require the worker to make a payment or work additional hours as a result of the change).
Where a new calculation year has been specified, in each subsequent year the worker’s calculation year begins on the anniversary of the first day of the new calculation year. For example, if an employer successfully changed a worker’s calculation year to 1 January, each subsequent calculation year would begin on 1 January.
Calculation year - Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE)
Where TUPE applies, the liability for complying with NMW law in relation to a worker transfers to the new employer.
The new employer would be restricted by any change of calculation year for a worker by the old employer, in terms of the limitation on not changing the calculation year again within 6 years.
Transitional provision for workers who meet the conditions for performing salaried hours work as a result of the changes to the legislation
As explained above, employers can change their worker’s calculation year following amendments to the National Minimum Wage Regulations. The rules came into force on 6 April 2020.
The rules do not immediately apply to workers who were re-classified as salaried workers from 6 April 2020. Such workers are temporarily subject to the original rules where the calculation year is based on the worker’s start date, under transitional provisions to help employers and workers to manage the changes.
In this case, the employer may choose to nominate the date on which the rules brought in on 6 April 2020 apply to the worker by giving the worker a written notice specifying the date (there is no notice period for this notice).
The nominated date may not be later than 6 April 2022. If the employer chooses not to give this notice, the rules brought in on 6 April 2020 apply to the worker from the first day of the worker’s first calculation year starting after 6 April 2022.
Where the employer gives notice of the date on which the amendments apply to the worker, that date becomes the first day of the worker’s calculation year. The anniversary of that day is then the first day of the worker’s calculation year in subsequent years.
Example scenario – employer nominates a date for the new rules to apply
Leo started a job on 1 February 2019. He counted as performing time work under minimum wage rules, because although he met most of the conditions for performing salaried hours work, his salary was paid every 2 weeks.
On 6 April 2020 when the new rules came into force, being paid a salary every 2 weeks became compatible with performing salaried hours work.
Therefore Leo meets the amended conditions for performing salaried hours work as a result of the changes to the rules brought in on 6 April 2020. He falls within the transitional provision.
The rules do not apply to Leo from 6 April 2020, and he continues to count as performing time work. His employer gives him notice that the new rules brought in on 6 April 2020 will apply to him from 1 January 2021.
On 1 January 2021 Leo counts as performing salaried hours work. His calculation year begins on 1 January 2021, and on 1 January each year in subsequent years.
Example scenario – employer does not nominate a date for the new rules to apply
Nelli started a job on 15 August 2019. She counted as performing time work under the NMW rules, because although she met most of the conditions for performing salaried hours work, she was entitled to a premium when her basic hours fell on a bank holiday.
As of 6 April 2020, such premium payments are now compatible with performing salaried hours work.
Therefore Nelli meets the amended conditions for performing salaried hours work as a result of the changes to the rules. She falls within the transitional provision.
The rules brought in on 6 April 2020 do not apply to Nelli and she continues to count as performing time work. Her employer does not give her a notice that the rules will apply to her from a specified date.
In this case the rules brought in on 6 April 2020 apply to Nelli from the first day of her calculation year starting after 6 April 2022. Nelli’s calculation year is determined by the date she started her job, and so her next calculation year after 6 April 2022 begins on 15 August 2022.
On and from 15 August 2022, Nelli counts as performing salaried hours work.
Calculating salaried workers’ hours - contract changes
If you reduce or increase a salaried worker’s contractual hours at some point in the calculation year, this will affect whether and when the worker does more than their basic hours. There are 2 methods for calculating the worker’s hours in this situation. Which of them applies depends on the circumstances.
The first method applies when you want to identify what the basic hours are before the contract is changed. In this case, the basic hours are the same as the hours that were fixed before the change takes place.
For example, an annual contract of 2,040 hours runs from April to March. You reduce the contract’s hours to 1,900 hours from 1 November. If you calculate the basic hours any time before November the number is 2,040.
The second method applies when you want to identify what the basic hours are after the contract is changed.
Example scenario - to identify basic hours after a contract is changed
An annual contract of 2,040 hours runs from April to March. You then reduce the contract hours to 1,900 from 1 November. If you need to identify the basic hours from 1 November onwards, you need to get the right proportion of annual hours in the right part of the year. To do this:
1. Calculate the number of days from the date of the change to the end of the contract year, for example from 1 November there are 151 days remaining of the contract year.
2. Divide that number by 365 and multiply by the new contract hours (1,900): 151 ÷ 365 x 1,900 = 786 hours.
3. Calculate how many days there were from the start of the contract year to the day before the contract was changed: 365 - 151 = 214.
4. Divide the figure from step 3 by 365 and multiply by the previous contract hours (2,040): 214 ÷ 365 x 2,040 = 1,196 hours. From 1 November onwards, the basic hours are: 786 (step 2) + 1,196 (step 4) = 1,982 hours.
If the contract hours are changed more than once during the year, the same method is used to get the right proportion of hours in the right part of the year.
Example scenario to identify basic hours after a contract is changed twice
An annual contract of 2,040 hours runs from April to March. The contract hours are reduced to 1,900 hours from 1 November and to 1,800 hours from 1 February. To identify the basic hours at any time on or after 1 February it is necessary to get the right proportion of annual hours in the right part of the year.
1. Work out how many days there are to the end of the contract year from the last time the contract was changed: 59.
2. Divide them by 365 and multiply by the new contract hours (1,800): (59 ÷ 365) x 1,800 = 291 hours.
3. Work out how many days there were from the first time the contract was changed to the second (and last) time it was changed: 92.
4. Divide them by 365 and multiply by the contract hours for that period (1,900): (92 ÷ 365) x 1,900 = 479 hours.
5. Work out how many days there were from the start of the contract year to the day before the contract was first changed: 365 - 59 - 92 = 214.
6. Divide them by 365 and multiply by the previous contract hours (2,040): (214 ÷ 365) x 2,040 = 1,196 hours.
From 1 November, the basic hours are 291 hours + 479 hours + 1196 hours).
Calculating salaried workers’ hours - workers leaving
If a salaried hours worker leaves before the end of the year, you may find they have worked more hours than the basic minimum hours for the part of the year you employed them. You must pay them at least the minimum wage for the excess hours. You should treat the excess hours as having been worked in the worker’s final pay reference period and should be paid for when the worker is paid for that period.
For example, you have an annual contract with a 29-year-old worker to work 2,040 hours a year - 170 hours per month (2,040 ÷ 12). They leave after 6 months having worked 1,150 hours.
1. Work out how many basic hours the worker should have worked under their contract: 6 months x 170 hours = 1,020 hours.
2. Calculate their excess hours: 1,150 - 1,020 = 130 hours.
3. Determine the hours for which the minimum wage is payable in the worker’s final pay packet by adding together their basic hours and the excess hours: 170 + 130 = 300 hours.
4. Multiply the hours worked by the minimum wage rate to calculate the minimum amount for the worker’s final pay packet: £10.42 x 300 = £3,126.
What is time work for minimum wage purposes?
If you pay a worker according to the number of hours they are at work, that work is time work. It may be 4 hours one day, 6 hours the next, 4 hours the following day, or 8 hours every day. Alternatively, the worker may be on a contract for a week or a month to do a particular job and they are paid for the hours done each week or month. That is also time work. Generally, anybody whose pay varies depending on the number of hours they work is likely to be performing time work.
Pay for time work for minimum wage purposes is based on the number of hours worked in a pay reference period. They must be paid at least the minimum wage for the time worked in each pay reference period. See Pay counted during a pay reference period for the purposes of the minimum wage.
The time work rules also apply when you pay a person according to the level of their output but you expect them to work for a set number of hours per day.
See also Time spent travelling on business
Example scenario
You employ a 27-year-old worker to work 40 hours over a 5-day working week in a factory and pay them each week. They make garments at a piece rate of £3.50 per garment. Normally, they can produce 3 items an hour and so earn £10.50 per hour. While there is an expectation of output – in this case, the worker being paid based on a garment per hour calculation – the worker would in fact fall into the category of performing time work. The worker would need to be paid at least the minimum wage even if, in a pay reference period, they produced only 2 garments per hour.
Their work counts as time work because they are required to work a set number of hours per week. You must pay them at least the minimum wage for every hour they work in a pay reference period.
Time work - calculating minimum wage entitlement
The basic minimum wage for each pay reference period for a person performing time work is calculated as follows:
-
Calculate the worker’s minimum wage pay for the pay reference period - (see Pay counted during a pay reference period for minimum wage purposes);
-
Work out their total working hours that count for minimum wage purposes during the pay reference period;
-
Divide the worker’s minimum wage pay by the hours worked.
The total from step 3 will give you the worker’s hourly rate for the pay reference period. You should then check that this is equal to or above the relevant national minimum or living wage rate that the worker is entitled to. See National Minimum Wage and National Living Wage rates.
Example scenario
You employ a 30-year old worker to work on the shop floor for 7.5 hours per day, 5 days a week.
However, you also ask the worker to come to a 1-hour team meeting once a week, and to come in 30 minutes early each day to prepare for the shift ahead.
This all counts as working time per minimum wage rules, so the workers minimum wage pay is based on this.
You pay the worker £450 per week – before tax and National Insurance deductions.
We then calculate the worker’s actual working time in each pay period.
7.5 x 5 = 37.5
0.5 x 5 = 2.5
1 x 1 = 1
Total weekly working hours = 41 hours.
£450 / 41 hours = £10.98
The worker is paid at least the correct minimum wage rate of £10.42 for their age.
What is output work for minimum wage purposes?
Output work is work that is paid only according to the number of things that a worker makes or tasks they perform. ‘Piece work’ or ‘commission work’ may sometimes be output work for minimum wage purposes.
For example, a worker would be performing output work if you paid them per garment finished at home and either:
- you do not set any hours of work
- the worker is free to start and finish work whenever they wish
However, the worker would be performing time work for minimum wage purposes if you paid them according to how many garments they produce and you fix the hours of work. As this is time work, this means that the total amount paid for garments produced in the pay reference period cannot be lower than the minimum wage rate multiplied by the number of hours worked or treated as worked in that period. (For more information see Time work).
For supplementary guidance on employing agricultural seasonal workers on the basis of output work (piece rates) see Pick for Britain.
Rated output work/fair piece rates
Workers performing output work must be paid by either:
- paying them at least a ‘fair’ piece rate for each piece produced or task performed (known as rated output work)
- paying them minimum wage for the time undertaking output work which is not rated output work
When workers performing output work are performing ‘rated output work’ for minimum wage purposes, you must pay them at least a fair piece rate for each piece produced or task performed. To be able to pay fair piece rates you must ensure that:
- the work meets the requirements for being rated output work
- you give notice in writing explaining the position to the worker
Both of these conditions must be satisfied; otherwise you must pay your output workers at least the minimum wage for every hour they work.
Rated output work - the mean hourly output rate
To calculate the fair piece rate for a worker performing output work you need to know the mean hourly output rate for the work. The mean hourly output rate for a particular piece or task is the average number of pieces or tasks your workers doing that work produce/perform per hour. This can include fractions.
To calculate the mean hourly output rate you can either:
- carry out a test of all your workers making the particular piece or performing the particular task, then divide the total number of pieces produced per hour or such tasks performed per hour by the total number of workers tested. For example, you employ a workforce of ten people to produce garments. In one hour, 100 garments in total are produced. The mean hourly output would be calculated by taking the 100 garments and dividing across the 10 workers - resulting in a mean hourly output of 10 items
- test a sample of your workers, for example 10%, making the particular piece or performing the particular task. The sample workers must be representative in terms of work speed - it would not be fair to choose a sample of your fastest workers or a mixture of average to fast workers
In both cases, the test is only satisfactory if you conduct it in circumstances similar to those in which all your workers actually work. You should aim to re-run the tests from time to time, particularly if there is a change in the work that needs to be done to make the piece or perform the task. You must also give notice in writing to the worker explaining the position. It is your responsibility to prove that you have complied with your obligations to pay the minimum wage – see Minimum wage record keeping.
Estimating mean hourly output rate
You can estimate the average number of pieces produced or tasks performed instead of carrying out a test in two situations. These are:
- where you have already tested to determine the mean hourly output rate for another piece made/task performed that is reasonably similar to the one in question and was done in similar physical conditions to those in question; or
- where a test has already been carried out and the mean hourly output rate established in relation to the same piece made/task performed but in different physical conditions.
In these situations, you must make a fair adjustment to the rate that has already been determined through testing for the increased or decreased time needed to produce the item or complete the task. For example, you may want to take a rate reached from testing factory workers and adjust it in relation to homeworkers producing the same piece.
Rated output work - fair piece rates for minimum wage purposes
To set a fair piece rate for workers which meets the minimum wage you could follow the steps in the example below. If you pay at the fair piece rate you will be paying exactly the minimum wage rate; this is the minimum possible pay. This means that any deductions from pay, for example for meals, would reduce pay below minimum wage, and lead to underpayment. As such, in practice you may wish to set your piece rate above this level.
Example scenarios
A test has established that the mean average hourly rate for making a particular piece is 10 pieces in an hour.
For a 22-year-old worker:
-
Take the mean hourly output rate for the piece or task: 10 items per hour.
-
Determine the fair piece rate for that piece of work by dividing the mean hourly output rate by 1.2 (a figure derived from regulation 43 National Minimum Wage Regulations 2015, which is intended to protect those workers who work a little more slowly than the average worker), that is 10 ÷ 1.2 = 8.33 items.
-
Divide the worker’s minimum wage rate by the number of assessed items per hour to get the fair piece rate: £10.18 ÷ 8.33 items = £1.22 fair piece rate.
For a 26-year-old worker:
-
Take the mean hourly output rate for the piece or task: 10 items per hour.
-
Determine the fair piece rate for that piece of work by dividing the mean hourly output rate by 1.2, that is 10 ÷ 1.2 = 8.33 items.
-
Divide the worker’s minimum wage rate by the number of assessed items per hour to get the fair piece rate: £10.42 ÷ 8.33 items = £1.25 fair piece rate.
You will have to recalculate the fair piece rate every time the minimum wage rates change on 1 April.
Rated output work - requirement to give each worker a written notice
You cannot fall within the rated output work provisions unless you have given your rated output workers a written notice explaining the position to them.
If you do not provide a worker with a written notice that complies with the conditions outlined below you will have to pay the worker at least minimum wage for each hour they work. It would be good practice to keep an acknowledgement from the worker or obtain a receipt.
The notice must:
- be issued before the start of the pay reference period (see Pay counted during a pay reference period for the purposes of the minimum wage) confirming you intend to pay them by a fair piece rate - if the terms of the notice have not changed, there is no need to issue a new notice before every pay reference period
- explain that for the purposes of compliance with minimum wage law, the worker will be treated as working for a certain period of time to produce a piece or perform a task
- state that for the purposes of determining this period of time, you have conducted a test or made an estimate of the average speed at which the piece/task in question is produced/performed – the mean hourly output rate
- state what the mean hourly output rate for the piece or task is
- state the rate or sum to be paid to the worker for the production of the piece or performance of the task in question
- give the telephone number of the Acas helpline (0300 123 1100)
Travel time for output workers
You must pay a worker performing output work at least the minimum wage for time spent travelling in connection with their job. For example, the time spent by a commission salesman travelling from one appointment to the next.
This does not include time spent travelling between home and their workplace. However, if they perform output work at home it does include time spent travelling from home to any separate premises they report at.
Absences from work
If a worker performing output work is away from work - for example on holiday, on sick leave or on maternity, paternity or adoption leave - the hours away from work do not count as hours worked.
If you pay them for the absence, and this is not consolidated into the worker’s standard pay (meaning you can identify the payment for those absences (for example, if you pay them on a lower rate during sick leave you can identify the specific payment for that absence) the payment for those absences will need to be subtracted from their minimum wage pay. That means, if the worker is paid for a sick day at 8 hours of NMW on top of whatever their output pay is, the sick pay is deducted from the calculation. In this instance, it’s likely to be clearly distinguished in a payslip or record if sick absence is paid as it won’t follow the same structure as the other output work.
What is unmeasured work?
Work is unmeasured work if it is not salaried hours work, time work or output work. Unmeasured work could meet some of the conditions of time or output work, but not all the conditions and so not count as either type of work. For example, work where there are certain tasks to be done but they vary and the worker is not paid per task would not be output work. If the worker was also not paid just by reference to the time worked performing the tasks but, for example, also based on the difficulty of each task, this would also not be time work. As it would also not be salaried hours work (the worker is not paid an annual salary), it must be unmeasured work.
An example of ‘unmeasured work’ can come in the care sector – where a live-in carer may be paid a fixed sum for, for example, staying with a client for a 24 hour period. The worker may be required to carry out a number of tasks through the shift to support the client, many of which are just provided as and when needed.
If the care worker can take a break whenever they are not needed they are not being paid based on the actual time worked during the shift, but just for the shift as a whole. In this case the work is not time work, because the pay does not vary based on the actual time worked. It is also not output work or salaried hours work, so it is unmeasured work.
You have 2 options for identifying the hours of unmeasured work that count for minimum wage purposes:
- recording every hour worked or treated as worked
- coming to a ‘daily average’ agreement of hours to be worked
Unmeasured work – ‘daily average’ agreements
The daily average agreement must:
- be agreed between you and the worker
- be made before the start of the pay reference period it covers
- be in writing
- set out the daily average number of hours which the worker is likely to work to fulfil the duties required by the contract
- be a realistic estimate of the daily average number of hours
One agreement can cover a number of pay reference periods if there is no change in the likely daily average number of hours. If challenged, it is for you to prove that the number of hours is indeed realistic - see Minimum wage record keeping.
Calculating the hours of unmeasured work under a ‘daily average’ agreement
Example calculation
To calculate the number of hours of unmeasured work done in the pay reference period - for example 1 week - when there is a daily average agreement, you should:
-
Confirm the agreed daily average number of hours of work per day - say 5 hours a day - and the number of hours the worker is required to be available for work (that is at or near the place of work and available to perform duties if called upon) on a full working day, say 12 hours.
-
Multiply the agreed daily average hours by the number of days when the worker was in fact available for work for the full number of hours contemplated by the contract - say 4 days: 5 hours x 4 days = 20 hours. These are the hours for which the worker should be paid, at not less than the applicable minimum wage rate.
If a worker is available for only part of a day, you should work out what fraction the part is of the time they are normally required to be available and calculate their hours of work for that day proportionately. For example, if a worker is estimated to average 5 hours of work in a day when they are available for 12 hours - if they were only available for 6 hours on 1 day they are treated as working for 2.5 hours on that day.
Travel time for people doing unmeasured work
You must pay an unmeasured worker at least the minimum wage for time spent travelling in connection with their job.
This does not include time spent travelling between home and their workplace. However, if they are a homeworker it does in our view include time spent travelling from home to the premises they report at (see Eligibility for the minimum wage).
Absences from work
If an unmeasured worker is away from work - for example on holiday, on sick leave or on maternity, paternity or adoption leave - the hours away from work do not count as hours worked.
However, if you pay them for the absence – for example, at a lower rate during sick leave - and can identify the payment related to the absence (it is not consolidated into standard pay), you should not include this payment in their minimum wage pay.
‘Sleep-in’ shifts
In some sectors such as the care sector, workers perform sleep-in shifts. This means that workers:
- are contractually obliged to spend a shift at or near their workplace, usually at night but it could be during the day
- are expected to sleep for all or most of that shift
- are woken if required to undertake a specific work activity
In the 2021 joint court cases on sleep-in shifts and eligibility for the minimum wage, the Supreme Court’s unanimous judgment clarified that sleep-in workers are only working and eligible for minimum wage when they are ‘awake for the purposes of working’. They are not entitled to minimum wage when they are permitted to sleep (judgment 19 March 2021 in the cases of Royal Mencap Society v Tomlinson-Blake and Shannon v Rampersad [2021] UKSC 8).
The position is different where workers are expected to perform activities for all or most of a shift, and are only permitted to sleep between tasks where possible (such as napping when not busy). In such cases it is likely that at least the minimum wage must be paid for the whole of the shift, including for any time spent asleep, on the basis that the worker is in effect working all of that time.
For time work and salaried hours work, the National Minimum Wage Regulations expressly require that, in order for the time spent asleep not to be eligible for minimum wage purposes, the employer must provide suitable sleeping facilities. If suitable sleeping facilities are not provided then the minimum wage must be paid for the entire shift.
Each case may be different depending on individual circumstances, including what the contract provides and what is happening in practice.
The following examples have been created based on the principles outlined by the Supreme Court to help illustrate how those principles might apply to particular scenarios:
Example 1: worker spending time awake but woken only occasionally to perform tasks
A care worker is provided with sleeping facilities and expected to sleep most of the night, but is required to keep open a ‘listening ear’. They spend some of the shift awake reading a book in bed for pleasure while keeping a ‘listening ear’, although they would be permitted to sleep during that time if they preferred. They are not entitled to the minimum wage while they are awake and reading or while sleeping, as in both cases they are not awake for work purposes.
Example 2: worker taking calls on a nightshift
A worker answers very occasional telephone calls on a nightshift and is expected to sleep in a suitable bed for most of the night between calls. The worker is only eligible for the minimum wage for the time spent awake for the purpose of answering calls and performing any other duties.
Example 3 –worker permitted to nap during working shift
A security guard performing time work is permitted to take a nap in a chair between regular tasks. They are expected to be awake for the purpose of working for most of the shift, and so would likely be working and eligible for the minimum wage for the entire shift. In any event, on the basis that they have no suitable sleeping facilities, they would be eligible for the minimum wage for the entire shift.
Example 4: worker woken to deal with emergency but not required
A care worker who is expected to sleep most or all of a night shift is woken to provide back-up to another care worker in dealing with an emergency. They get dressed and sit near their fellow worker, but as it turns out they are not needed and are able to read the newspaper for an hour. They are still ‘awake for the purposes of working’ for that hour and so eligible to be paid minimum wage for that hour.
Example 5: worker woken frequently contrary to original expectation
A care worker is expected to sleep for most of the night. Initially the worker is woken only occasionally to attend to someone. Only the period for which the worker is actually awake for the purposes of working is included in the minimum wage calculation.
However, over time, the nature of the shifts change, and the worker becomes persistently woken so that in practice little sleep is possible. It could then no longer be said that they are expected to sleep for most or all of the shift, and the worker would likely cease to be a sleep-in worker. It is likely the worker would then be entitled to the minimum wage for the entire shift.