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Minimum wage changes

From October 1, 2004, the rate of the national minimum wage (NMW) will be increased and extended to an age group previously excluded from it. For pay periods that begin on or after that date:

  • the main adult rate of the NMW will increase from £4.50 to £4.85 per hour and the development rate (for those aged between 18 and 21 years and others who qualify for it) will be increased from £3.80 to £4.10 per hour
  • a new NMW rate of £3.00 per hour will be introduced for those above the compulsory school age but below 18. This new rate will not apply to those employed under specified Government training Schemes including those in the training scheme known as Get ready for Work
  • an increased rate of £3.75 per day will require to be taken into account as a payment to the worker where the employer provides accommodation to the worker without receiving payment from him for it.

    Also effective from that date there will be a new method of calculating the NMW rate for output work, irrespective of whether the work is done from home or from employers’ premises, that is work that is paid by entirely by reference to the output of the worker whether that is per piece or per transaction. This replaces the current method of fair estimates.

    The new calculation means that these workers require to be paid either for the actual time spent working or according to a new rated output method. The rated output method will apply only if all of the following conditions are met:

  • the output work is work for which the contract does not state minimum or maximum hours
  • if the employer does not, in practice, determine or control the actual number of hours
  • the employer has calculated the mean hourly output rate either by testing the speed of output of all his workers or a representative sample of them or in certain specified circumstances, by carrying out a satisfactory estimate; and finally,
  • the employer must give the worker a notice in a specified format (model forms are to be made available by the DTI).

    The example provided by the DTI guidance is that if the average rate of pieces produced by workers in an hour is 10 items then each piece of work will be rated as worth 48.5 pence irrespective of the time actually taken by each individual worker (who qualifies for the NMW at the main rate) to produce each item.

    With effect from April 2005 a deemed rate will be applied so that the time taken by workers is deemed to be 120% of the time an average worker would have taken. So in the example above, one item would be worth 120% x 48.5 pence, i.e. 58.2 pence. The thinking behind the deemed rate is said to be so that even slower workers earn the NMW rate.

    New record keeping obligations in relation to output workers also apply from October 1. These require employers to keep a copy of the notice given to workers and enough data to show how the rates have been determined. Employers are well advised to do so since the onus of proving the NMW rate has been paid rests with them. If they fail to do so they risk financial penalties in the form of claims by workers and/or enforcement action by the Inland Revenue.

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