This Content Was Last Updated on February 9, 2017 by Jessica Garbett


Catch up on the latest developments surrounding the national minimum wage.

It is hard to imagine now that until 1998 there was no such thing as a national minimum wage. Then the National Minimum Wage Act 1998 was published, and it required that all workers who worked under a contract of employment should be paid at least the national minimum wage.

The following year, regulations (SI 1999/548) were introduced that included an exemption for family businesses employing family members who live at home and help in the business. At this time there was still some confusion around whether or not company directors were caught by the legislation, but in 2000, the DTI (now the Department for Business Innovation and Skills (BIS)) made it clear that they are not.

The national minimum wage does not apply to company directors unless they have contracts which make them ‘workers’. Company directors are classed as ‘office holders’ in common law and can do work and be paid for it in that capacity. This is true no matter what sort of work is done or how it is rewarded.

So, it is unlikely that a director will have an implied contract which makes him a worker. However, company directors who have employment contracts will need to be paid the national minimum wage. If a company director is unsure whether he has entered into an employment contract with his company he may wish to speak to his accountant for advice.

Latest developments – rates and penalties

The national minimum wage (NMW) is increased every year. There are four different rates. Since 2010 there has been a different rate for apprentices. The other three rates are for those aged below 18, between 18 and 20, and 21 and over. You can find the appropriate rates and other NMW information on the website.

There are penalties for those employers who pay their employees below the minimum wage. In addition, since 2011 BIS has had a policy of ‘naming and shaming’ certain employers guilty of breaking the rules. The employers’ behaviour had to meet certain conditions before such naming and shaming could take place. So far, only one employer has been named and shamed.

In 2013, these rules were relaxed so that any employer paying below NMW, even if it was unintentional, can be considered for naming and shaming. In theory this means that every employer who receives a Notice of Underpayment from HMRC could be publicly named, though employers will have the right to appeal against this, and BIS can take into consideration such things as whether it would be in the public interest (for example due to national security risks) or whether there might be a risk of personal harm to an individual or a family member.

In November 2013 it was also announced that the penalty for paying below the NMW will quadruple from £5,000 per employee to £20,000. The Statutory Instruments to bring this into force were produced in January 2014. These new regulations will also allow a charge of 100% of the total underpayment, rather than 50% as at present. This change is expected to come into effect for pay reference periods from early March 2014, while primary legislation to give effect to the £20,000 penalty per worker is likely to be in place for the end of 2014.

Article from ACCA In Practice