Understanding National Minimum Wage law

The four types of work

There are four types of work for National Minimum Wage (NMW) purposes. Work performed by a worker can fall under a combination of types. Count the number of hours they do for each category in order to calculate the NMW.

A time worker, eg a factory worker, is paid according to set or varying hours or periods of time worked.

A salaried-hours worker, eg an office worker, is paid for a pre-determined number of minimum hours a year and is contractually entitled to an annual salary paid in equal instalments. Time taken as unpaid leave is not part of the contractual hours.

An output worker, eg a homeworker, is paid according to each piece produced or task performed, but has no fixed hours of work. Output work can also be called commission or piece work.

From 1 October 2004, output workers either have to be paid the minimum wage for all hours worked, or paid a "fair" piece rate that allowed an average worker to receive the minimum wage. From 6 April 2005, "fair" piece rates have to be multiplied by 1.2 for the rate to be considered "fair", so workers who are slightly slower than the average will still receive the NMW. For example, if an average worker can produce ten items per hour the fair piece rate prior to 6 April 2005 would have been 48.5 pence as 10 x 48.5 = £4.85, the main NMW rate. Since 6 April 2005 the fair piece rate of 48.5 pence needs to be multiplied by 1.2 to equal 58.2 pence.

Download a guide to "fair" piece rates for output workers from the DTI website (PDF).

An unmeasured worker, eg domestic staff, is paid according to certain tasks. There are no specified hours or time periods when the tasks must be done. The worker works when required or when work becomes available.

As an employer you elect whether to pay an unmeasured worker for every hour worked or to enter a "daily average" agreement that will state the realistic daily average number of hours to be worked.

The hours for which you must pay your workers the NMW depend on the nature of work they are doing.

Subjects covered in this guide

• Introduction
• National Minimum Wage rates
• Who is entitled and who is exempt?
• What is included and not included?
• The four types of work
• Calculating hours worked and paid leave
• Records and reporting - best practice
• Enforcement and penalties