As a result, you need to know how to work out the equivalent hourly rate – no matter how your workers get paid.
So, how do you check your workers are getting the correct minimum wage? It will depend on how you pay them, such as:
- Time work (e.g. by the hour).
- Salaried hours – meaning they have a contract for a basic number of hours each year.
- Output work (e.g. tasks they complete, number of things they make).
- Unmeasured work (some other method).
Note: You can use the National Minimum Wage and Living Wage calculator to check if your workers are getting payments above the minimum wage.
What is Counted as Working Time?
If you are working out what counts as working time for all types of work, you should include any time spent:
- At work and at a time when they are required to be working (including time spent ‘on standby’ near the workplace but not time taking rest breaks at work).
- Not performing work due to machine breakdown (when kept at the workplace).
- Waiting to:
- Collect goods.
- Meet someone for work.
- Start a job.
- Travelling (if connected to work) and can also include journeys taken between work assignments.
- Training (including time spent travelling to the training location).
- At work and under certain types of work-related responsibilities – including the time when workers sleep (even if a place to sleep is not provided).
However, you should not include any time spent:
- Travelling between the home and the location of the workplace.
- Away from work while on:
- Rest breaks.
- Sick leave.
- Maternity leave.
- Taking industrial action.
- Not actually working but present at the workplace or available for work at or near the workplace during a time when workers have permission to sleep (if you provide a place for them to sleep).
Note: The Acas helpline provides free and confidential advice to employers and employees about employment rights in the United Kingdom.
Time Work (paid by the hour)
In short, doing ‘time work’ means you get paid according to the number of hours you work. Even so, the average hourly pay needs to be the National Minimum Wage (or higher) and worked out over the period that each pay packet covers (e.g. one month).
Suppose you are working in a call centre and you get paid at the end of each month for the number of hours you worked (e.g. 124 hours).
The calculation for a worker paid by the hour would be the current minimum wage rate multiplied by the number of hours worked (e.g. 124).
Salaried Hours (paid an annual salary)
Workers will be carrying out a type of employment classed as ‘salaried hours’ if the way that they get paid is:
- A set basic number of hours each year according to their contract of employment.
- A yearly salary in equal amounts (e.g. weekly or monthly).
The contract may not state the basic number of hours as an annual figure for salaried hours workers. But, the employer and worker would both need to be able to calculate it to ensure the pay rate is at least the minimum wage.
Working Out Hourly Rates
Follow these three basic steps to work out your worker’s hourly rate:
- Determine the basic annual hours as stated in the contract.
- Divide the number of basic annual hours by the number of times they get paid each year (often 12 when paid monthly) to determine the average number of hours covered by each pay packet.
- Divide the amount showing in each pay packet by the average hours to work out the worker’s hourly rate.
Note: The employer would also need to pay at least the minimum wage for any extra hours worked on top of the number of hours as stated in the worker’s contract.
Output Work (paid per task)
Some workers get paid for each task they perform or for each piece of work they do. They must receive (either):
- At least the minimum wage for every hour worked.
- A ‘fair rate’ for each task or piece of work they do.
As a rule, employers can only use output work in limited situations. An example would be when the employer is not aware of the actual hours the worker does (e.g. a home worker).
Note: Setting the working hours whereby the worker needs to clock in and out would count as ‘time work’ (not output work).
What Counts as the Fair Rate?
In short, it refers to the amount that allows an average worker, working at an average rate, to receive pay at the minimum wage per hour.
Employers should follow these three steps when working out the fair rate for a worker on piece work:
- Determine the average rate of work per hour (e.g. for the number of tasks or pieces completed).
- Divide it by 1.2 (doing so will not disadvantage new workers who are not yet as fast as others).
- To calculate the fair rate for each piece of work completed, divide the hourly minimum wage rate by the number you determined.
Employers should follow these four steps when working out the average rate of work per hour (e.g. carrying out a fair test to determine the average rate of work):
- Test some of the workers (or all of them). The group tested must be a typical representation of the whole workforce (i.e. not only the fastest or most efficient).
- Determine how many pieces of work they complete in an ‘average’ working hour.
- Divide the result by the number of workers to calculate the average rate.
- Carry out another test to calculate the new average rate if there is a significant change in the type of work performed.
Note: There would be no need to carry out another test for the same work done in a different environment (or work done at home that was previously done in a factory).
Unmeasured Work (paid another way)
The term ‘unmeasured work’ covers the minimum wage rates for different types of employment not covered by the usual types of work.
In most cases, it refers to a set amount of pay for doing a particular task no matter how long it takes (such as getting paid £300 to lay a patio).
When working out the minimum wage for unmeasured work, you can either:
- Make an agreement on the ‘daily average agreement of hours’.
- Record every hour worked and use the National Minimum Wage calculator to ensure the worker gets at least the minimum wage.
Making a Daily Average Agreement of Hours
As a rule, the employer and worker would need to agree a typical number of hours worked each day. You can use one agreement to cover several pay reference periods (e.g. weeks if paid weekly) providing the average number of hours stays the same.
Daily average agreements of hours must be stated in writing, made prior to the start of the pay reference period that they cover, and state the number of hours (as an average and realistic) that the work should take each day.