Understanding National Minimum Wage law

What is included and not included?

Only particular elements of a worker's pay count as National Minimum Wage (NMW) pay. To calculate a worker's NMW pay:

1. Take the total gross pay.
2. Subtract payments and deductions that do not count as gross pay.
3. Divide this amount by the total number of hours worked in the "pay reference period", eg a week, fortnight or four weeks.

Total gross pay will include allowable payments and deductions such as bonuses, deductions for income tax, National Insurance contributions and workers' pension contributions. However, some payments and expenses do not count as gross pay. These payments may include loans, pension payments, redundancy payments, overtime and extra payment for unpopular shifts eg night shifts.

Expenses linked to the job, travel costs when doing the job and accommodation above a certain limit are all deductions that do not count towards minimum wage pay.

You can download detailed information on the National Minimum Wage from the DTI website (PDF).

Benefits in kind such as meals, fuel, a car or employer pension contributions do not count towards the minimum wage, whether they are taxable or not.

There is a limit on the amount of accommodation payments that can count towards NMW pay. That limit is known as the accommodation offset, which is currently set at £27.30 per week (£3.90 per day).

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