Calculating pay and deductions

Employers should use gross pay to determine whether they comply with the NMW legislation. Most financial rewards (including incentives, piecework payments, sales commission and performance-related pay awards) count towards the calculation of pay for entitlement to the NMW.

However, some things, such as non-consolidated regional allowances, unsocial hours payments, on-call allowances, additional premiums for working overtime or shifts, and tips and gratuities do not count. Similarly, benefits in kind - uniforms, meals and travel, for example - are outside the NMW equation, although employer-provided accommodation may be counted.

Expenses paid for an employee to travel to a temporary workplace do not count as part of an employee's pay for NMW.

Certain deductions from wages and payments made to the employer will have to deducted from gross pay to determine NMW (see ‘Deductions from pay that reduce minimum wage pay’) whereas others can be disregarded because they do not reduce NMW pay (see ‘Deductions from pay which do not reduce minimum wage pay’). Once these deductions and payments are considered, the pay for NMW purposes has been calculated.

Deductions from pay that reduce minimum wage pay

Once gross pay has been determined, certain deductions from pay will have to be taken into account when calculating hourly pay for the worker. This is because they reduce NMW pay so the worker has to receive at least minimum wage once the deductions have been made. These include:

• deductions or payments due that are connected with employment (e.g. purchase of uniforms, tools or equipment)
• deductions or payments to the employer for the employer’s use or benefit (e.g. deductions for meals)
• deductions or payments to the employer for living accommodation which is in excess of the accommodation allowance ( £8.36 from April 2021).

In Round 17 of National Minimum Wage Naming and Shaming, August 2021, a number of deductions were identified that resulted in a breach of the national minimum wage:

• Attachment of earnings administration fees
• Food / meals
• Parking permits travel costs
• Cost of, or lost, work equipment and / or Personal Protective Equipment
• Stock or till shortage
• Training costs
• Christmas savings schemes
• Childcare costs
• Salary sacrifice schemes e.g. cycle to work, pension and employer benefit schemes
• Worker purchase of clothes to meet dress code

Deductions from pay which do not reduce minimum wage pay

Once gross pay has been determined, certain deductions from pay do not have to be taken into account when calculating hourly pay for the worker. This is because they do not reduce NMW pay so the worker is only entitled to receive at least minimum wage before the deductions are made. These include:

• deductions or payments to the employer which are made under the contract due to the conduct or other of the worker for which they are contractually liable (e.g. deductions for damage to company property)
• deductions or payments to the employer which are made under a loan agreement, advance of wages agreement or because of an accidental overpayment of wages
• payments made to the employer to buy goods or services from the employer which are not connected with employment or required by the employment contract.

The BEIS Guidance also includes deductions for tax, National Insurance and those which are not connected to employment or for the employer’s use or benefit (e.g. pension contributions).