Agricultural wages in England and Wales

The Agricultural Wages Board for England Wales has agreed the following improvements to rates and conditions to take effect from 1 October 2004. The changes should be seen in the light of the increases to the National Minimum Wage (NMW) from 1 October 2004, i.e. a 7.8% increase for adult workers from £;4.50 to £;4.85, and a 7.9% increase for workers age 18-21 from £;3.80 to £;4.10.

• the minimum rate for an adult Standard Worker increases by 4.9%, from £;5.15 to £;5.40 per hour, with Flexible Worker, Young Trainee and Modern Apprentice rates increasing by the same percentage
  
  
• the Craft Grade rates and Appointment Grade I and Grade II rates rise by 5.8% to £;6.37, £;7.29 and £;6.75 per hour respectively
  
  
• the Total Annual Holiday entitlement increases by 1 day, e.g. 23 days for a five-day worker
  
  
• Allowances increase by just under 5%
  
  
• the "other accommodation" offset increase to £;26.25 (i.e. £;3.75 per pay) from 1 October 2004, to match the National Minimum Wage provisions
  
  
• the Manual Harvest Worker rate increases to £;4.85, to match the National Minimum Wage.

The Agricultural Wages Board for England and Wales has eight representatives from each of the National Farmers Union and the Transport and General Workers' Union, and five independent members appointed by DEFRA and the National Assembly for Wales. The Board is not allowed to set rates that are lower than the NMW.

Agricultural wages in Scotland and Northern Ireland are due for review on 1 January 2005 and 4 April 2005 respectively.

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...back to 2 July 2004

Sources:
www.defra.gov.uk/news/awb/0104awb.htm
www.defra.gov.uk/farm/agwages/awo2003/awo03.pdf

National Minimum Wage - pieceworkers

The National Minimum Wage Regulations 1999 (Amendment) Regulations 2004, reviewed in detail in the Newsletter of 16 April 2004, have now been approved by Parliament. The new rules for the setting of "fair piece rates" will take effect on 1 October 2004, and the further change, that allows 120% of the number of hours treated as having been worked to be used in order to demonstrate compliance, will take effect on 6 April 2005.

The final regulations make only one minor change to the earlier draft version. The change is a point of clarification and does not affect the wording of the summary in the Newsletter of 16 April 2004.

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...back to 7 May 2004

Source: www.hmso.gov.uk/si/si2004/20041161.htm

National Minimum Wage - pieceworkers

The DTI has now published some basic guidance on the new "rated output work" method of checking compliance with the national minimum wage (NMW) for pieceworkers, i.e. workers who are paid piece rates and whose work is not under the direct control of the employer. The new arrangements will come into effect from 1 October 2004.

In our response to the consultation paper issued by the DTI in November 2003, we suggested that setting "fair piece rates" was a practical replacement for the "fair estimate agreements" that were a part of the original NMW rules for payments made to output workers. However, we were critical of the complexity of the method proposed for setting "fair piece rates". Employers will have to conduct what is effectively a work study exercise on all, or a representative sample, of the workers involved in each type of piece work. This may be impracticable where the work is performed in each worker's home. The alternative approach of estimating the rate at which work is performed is, we think, open to abuse.

The Government has published draft Regulations and these have now been explained in basic guidance notes. For the benefit of employers who will need to apply the new rules, we have reworked the key points from the summary of the proposals that appeared in the Newsletter of 7 November 2003.

You can read the full article HERE
...back to 16 April 2004

National Minimum Wage - 16 and 17 year olds

The new £;3.00 hourly rate for 16 and 17 year olds, effective October 2004, will apply to

• 16 year olds who are over school leaving age, and
• 17 year olds.

The school leaving age differs in England and Wales, Scotland and Northern Ireland. The following Table summarises the current situation.

National Minimum Wage and output work

During 2003, the Government put forward proposals to replace "fair estimate agreements", by which the national minimum wage is applied to workers paid on piece rates, by a new method of calculating compliance called "rated output work". The proposals were published late in 2003 and were reviewed in a news item dated 7 November 2003. We commented at the time that the administration of "rated output work" appeared to be even more complex and impracticable than the fair estimate agreements.

The Government published draft Regulations in February 2004 and, at the time, the DTI's press release announced that they would take effect in October 2004 and benefit some 170,000 homeworkers.

There has been some discussion in the payroll press about these new Regulations. However, they are still in draft form and have not yet been approved by Parliament. The DTI has provided no further information on the National Minimum Wage section of its website.

As and when they are eventually finalised, we will cover the new calculation methods for rated output work in a news item.
(Source: www.hmso.gov.uk/si/si2004/draft/20048731.htm )
...back to 26 March 2004

Agricultural wages in Northern Ireland

A 5% increase in the minimum wage rates for agricultural workers in Northern Ireland has been confirmed and takes effect from 5 April 2004. The new rates are set out below. There are no other changes to working conditions.

(Source: www.dardni.gov.uk/pr2004/pr040051.htm )
...back to 12 March 2004

Agricultural workers in Northern Ireland

The Agricultural Wages Board for Northern Ireland has announced proposed changes to the minimum rates of wages for agricultural workers following a meeting on 6 February 2004. The Board proposes to increase existing minimum rates of pay for workers in all age groups by 5 per cent. The minimum hourly rate at age 19 would increase from £;4.85 to £;5.09. No other changes to working conditions are proposed.

The Board will meet again on 5 March 2004 to consider any objections to the proposal. The new rates are due to come into operation on 5 April 2004.
(Source: www.dardni.gov.uk/pr2004/pr040034.htm )
...back to 27 February 2004

Agricultural wages in Scotland

Minimum wage rates for agricultural workers in Scotland increase by 5.5% from 1 January 2004. Details of the award are as follows:

• an increase from £;4.31 to £;4.55 per hour for adult workers (age 19) in the first 10 weeks of employment
• an increase from £;4.74 to £;5.00 per hours for adult workers after the first 10 weeks of employment
• the additional sum payable to workers with appropriate qualifications increases from 71p to 75p per hour
• the multiplier for overtime is reduced to 1.5 times the minimum hourly rate for new workers starting from 1 January 2004. The existing 1.65 multiplier is preserved for workers in employment on 31 December 2003.

Agricultural wages may not be lower than the National Minimum Wage.
(Source: www.scotland.gov.uk/pages/news/2003/10/SEen653.aspx )
...back to 19 December 2003

National Minimum Wage and homeworkers

Fair estimate agreements

The National Minimum Wage Regulations 1999 provide for the making of "fair estimate" agreements where workers are paid piece rates and the employer has no control over when the work is done or how much time must be spent doing the work. This is commonly the situation with homeworkers. In the absence of a fair estimate agreement, such workers must report the time they spend working at piece rates and the employer must ensure that the payment based on the piece rates is not less than the National Minimum Wage (NMW) for the time spent doing the work.

A fair estimate agreement allows the NMW to apply only for an amount of time previously agreed between the parties, with any extra time being paid only at the piece rate - even if that is less than the NMW.

As originally conceived, fair estimate agreements were intended to benefit both employers and workers. The "fair" element of the agreement was intended to prevent employers from deliberately setting unachievable targets. The "estimate" element was intended to ensure that employers do not need to pay additional hours to workers who take longer than necessary to do the required work.

In February 2003, the Government announced that it was reviewing the operation of fair estimate agreements. Representations from employers of homeworkers and from representatives of homeworkers had indicated that the agreements were not working well. Employers reported that they tend not to use them because they are seen as complex, difficult to administer, and require new agreements to be made whenever the work to be performed varies. Homeworkers complained that, where they were used, they were often imposed rather than agreed, and the number of hours needed to complete the tasks was set unreasonably low so that few were actually receiving the NMW.

Fair piece rates

The Government's intention was to replace fair estimate agreements with a requirement for all output workers to be paid either (1) the minimum wage for all hours worked, or (2) "fair piece rates" that are linked to the NMW.

Following a period of consultation, the Government has now published its proposals in the form of draft Regulations and is consulting further on their contents. The new arrangements, as currently defined by the Department of Trade and Industry, would work as follows.

If the worker is paid piece rates and the employer decides not to follow the new arrangements, the worker must be paid at least the NMW based on the time spent to produce the pieces. If the piece rate payment is too low, it must be topped up to the NMW.

Example: In 30 hours, a worker produces 120 items for which the piece rate is £;1. The payment due is £;120. As the NMW hourly rate is £;4.50 per hour, the statutory minimum payment for 30 hours work is £;135. The employer must top up the piece rate payment by £;15.

The new Regulations define a method of setting "fair piece rates" and introduce the concept of "rated output work". If the procedures are followed, the employer must set piece rates that will ensure that employees receive the NMW, even if they work more slowly than other workers making the same pieces. The procedure requires the payment of at least the NMW for a "deemed" number of hours rather than the "actual" number of hours worked.

To be "rated output work", output work must meet four conditions. They relate to a "subject piece", i.e. the piece of work that is the subject of the output work.

1. the worker's contract does not define any normal, minimum or maximum working hours for the output work to produce the subject piece, and
2. the employer does not in practice control the hours worked by the worker in producing the subject piece, and
3. the employer has determined the "mean hourly output" for the subject piece, and
4. the worker is given a written notice containing certain defined information before the start of the pay reference period in question.

Therefore, as long as the worker is not contractually required to work certain hours and has full control over when the work is done, the two issues for the employer are

• how to perform the tests necessary to find the "mean hourly output" for the subject piece, and
• what to put in the statutory written notice.

The written notice must contain

• a statement that informs the worker that, in order to comply with the NMW, the worker will be treated as working for a certain period of time in respect of producing the subject pieces during the pay reference period, and
• a statement that the period of time is based on the average speed at which workers of the employer produce the subject piece, determined as the result of a test conducted by the employer or an estimate made by the employer, and
• a statement of the "mean hourly output" for the subject piece and the piece rate for the subject piece, and
• the telephone number of one of the national minimum wage helplines, identifying it as such.

The "mean hourly output" for a subject piece is the average number of pieces (including fractions of a piece) that workers of the employer produce in an hour. This average should initially be determined by testing the average speed at which all workers of the employer produce the subject piece. This is done by totalling all of the pieces produced in an hour (including fractions) and dividing the total by the number of workers.

The test must involve

• all the workers of the employer who produce the subject piece, or
• a sample of those workers who are representative in terms of the speed at which they work.

However, the test is only satisfactory if it is conducted in circumstances similar to those in which the worker in question will produce the subject pieces.

Instead of an actual test of the speed of production, the employer may estimate the speed of production for a particular subject piece.

• if the subject piece is reasonably similar to another piece that has been actually tested and the average speed has been fairly adjusted to take account of the increased or decreased time involved in producing the subject piece, or
• if the speed of production of the subject piece has been tested in working circumstances that are different to those of the worker in question and the average speed has been fairly adjusted to take account of the increased or decreased time involved in producing the subject piece in the circumstances in which the worker works.

Having tested or estimated the "mean hourly output" of the subject piece, the number of hours spent by the worker in producing subject pieces in the pay reference period is deemed to be, not the actual number of hours, but

the number of subject pieces produced ÷ the mean hourly output × 1.2

If the employer has set the worker a maximum number of subject pieces to produce in the pay reference period and the worker produces more, the maximum number set is used instead of the number of pieces produced.

It must be noted that this procedure is intended only to allow the employer to calculate the deemed number of hours worked for the purposes of the NMW instead of taking the number of hours actually worked. It would no longer be necessary for the worker to report the number of hours actually worked. Nothing affects the way in the employer's payment is calculated using the number of pieces produced and the defined piece rate.

The employer now has only to ensure that at least the NMW rate is paid for the deemed number of hours instead of the actual number of hours worked. This is achieved, as will be seen from the worked examples below, if the employer sets piece rates that reflect the NMW when multiplied by the "mean hourly output".

Example: The employer tests the rate at which all the homeworkers in the employment produce a particular item and the average is 4.5 per hour. In a written notice, the three workers are told that the "mean hourly output" is 4.5, the piece rate is £;1.20 and the required number of pieces to be produced in the week is 135.

Worker A works at the average speed and produces 135 items in 30 hours. The deemed number of hours that are used for NMW purposes is 36 (i.e. 135 items ÷ 4.5 × 1.2). The worker must be paid at least £;162.00 (i.e. 36 hours @ £;4.50) to meet the NMW. The employer actually pays £;162, i.e. 135 @ £;1.20, matching the NMW.

Worker B works below the average speed and produces 120 items in 30 hours. The deemed number of hours that are used for NMW purposes is 32 (i.e. 120 items ÷ 4.5 × 1.2). The worker must be paid at least £;144 (i.e. 32 hours @ £;4.50) to meet the NMW. The employer actually pays £;144, i.e. 120 items @ £;1.20, matching the NMW.

Worker C works above the average speed and produces 150 items in 30 hours. This exceeds the required number of 135 set by the employer, so 135 is used to calculate the deemed hours. The deemed number of hours that are used for NMW purposes is 36 (i.e. 135 items ÷ 4.5 × 1.2). The worker must be paid at least £;162 (i.e. 36 hours @ £;4.50) to meet the NMW. The employer actually pays £;180, i.e. 150 items @ £;1.20, exceeding the NMW.

Comment

If the main criticism of fair estimate agreements was that they were too complicated to operate, the introduction of fair piece rates is likely to be criticised even more. The above description of the new rules is a simplified explanation of the wording used in the draft Regulations and the author was only able to understand the purpose of the new procedure clearly when the final worked examples were completed.

These procedures also require a "mean hourly output" figure to be defined separately for each piece, initially by testing the speed at which workers produce the item, a requirement that is probably impracticable when all of the workers work in their own homes. The concessions of using a representative sample of the workers and of estimating average outputs from tests on similar pieces are helpful but open to abuse.

Despite these problems, the concept works, as may be seen from the worked examples. Employers have the option of making top-up payments to slower workers or setting piece rates in the first place that guarantee the NMW is met if the "mean hourly output" figure is properly calculated.

Readers who use homeworkers should study these proposals very carefully and evaluate their application to their own working practices. The DTI is seeking further comments on any aspects of the draft Regulations, but particularly on

• the requirement that output workers must be paid the minimum wage for all hours worked, or paid under a system called "rated output work"
• the suggestion that each worker must be given a written notice making clear the entitlement to be paid a fair piece rate
• the point that the employer must pay each worker for the number of hours that a person working at the mean hourly output rate takes to produce the number of pieces made, multiplied by a factor of 1.2
• the way in which the employer determines the mean hourly output for each type of piece.

Representation must be sent to Mike O'Donnell, Senior Policy Advisor for the National Minimum Wage, at Mike.O'Donnell@dti.gsi.gov.uk , by 23 January 2004.

The Government intends to introduce the changes from 6 April 2004.
(Source: www.dti.gov.uk/er/nmw/fair_piece_rates.pdf)
...back to 7 November 2003

National Minimum Wage

As a reminder, the National Minimum Wage rates increase from 1 October 2003:

• The "adult" rate: The full rate of the NMW is £;4.50 per hour and applies to most workers who are aged 22 or above.
• The "development" rate for juniors: The lower rate is £;3.80 per hour and applies to workers who are aged 18 but not yet 22.
• The "development" rate for adults in training: A rate of £;3.80 applies in the case of workers aged 22 or above for their first six months in a new job, as long as they are receiving accredited training. The rate does not apply if the worker does not otherwise qualify for the NMW.

The DTI has published its fourth annual National Minimum Wage Report, coinciding with the October 2003 increases to the National Minimum Wage (NMW). Responsibility for the NMW legislation lies with the DTI, although the Inland Revenue ensures compliance through a service level agreement with the DTI.

Since the NMW was introduced in April 1999, the Inland Revenue helpline has responded to more than 330,000 enquiries and handled over 10,000 complaints about under-payment.

Working alongside the NMW Helpline, the Central Information Unit (CIU) collates statistical information on the Revenue's enforcement performance but, increasingly, is involved in identifying employers who are more likely to be under-paying that other employers. For example, many of the compliance cases handled by the Inland Revenue inspectors during the past year were referred by the Tax Credit Office, involving employers whose failure to pay the NMW came to light as the result of claims for tax credits made by their employees.

Complaints are handled by Inland Revenue compliance officers who work in 18 teams throughout the UK, each with between 3 and 8 staff. However, they also make unprompted visits on a sample of employers to check the pay rates are not less than the NMW rates. In the four years, the total number of employers that have been investigated is 24,903, of which 39% were as the result of complaints, 30% were cases referred by the TCO, and 31% were on employers who had been identified by the CIU as most at risk of non-compliance.

Non-compliance was discovered in around 32% of investigations and, to date, £;13 million has been paid to employees as arrears or earnings. Nearly 75% of all arrears originate from complaints from employees.

The report gives summaries of the results of many investigations, many of which stem from misunderstandings by employers of the NMW rules. For example:

• A complaint was received by a security guard working for a golf club. The guard was one of three who worked night shifts and were paid for the actual job done and not the hours worked. The compliance officer calculated the wage arrears, which went back to April 1999. The employer agreed the calculations and the three workers received £;22,151 in arrears payments.
• A petrol station worker had a contract that stipulated an hourly rate of pay of less than the minimum wage for the shifts he worked during the week and an hourly rate of pay in excess of the minimum wage for weekend shifts. The employer believed, incorrectly, that as long as the worker's total pay over the week averaged out to the minimum wage he was complying with the legislation. It was explained to him that, where the same work is being done, the additional overtime payment does not count for minimum wage purposes. The calculation assumes the lower rate for the weekend as well as the rest of the week. £;2,753 in wage arrears were identified for payment to the worker.
• An 18-year-old schoolgirl employed by a dry cleaning agency complained that she was not being paid the minimum wage. After initially denying that the schoolgirl worked for him, the employer told the compliance officer that the timesheets he had kept were incorrect, as he didn't think that hours worked by schoolchildren needed to be recorded. He subsequently agreed to pay the minimum wage and also to pay the previous pay arrears. The young worker benefited from £;162 pay arrears.
• A graphic designer complained that he was not being paid the minimum wage because he was classed as a trainee even though he was not receiving formal training. The subsequent investigation revealed that he was carrying out the full range of duties expected of him and was referred to as a trainee mainly because he was new to the company and initially employed for a trial period. The complainant received over £;300 in arrears.
• A visit to a café revealed that the owner was "aware" of the minimum wage but unsure of the rates. He believed that allowing his workers free meals and drinks would make up for any shortfall in wages and stated that they had agreed to this. The compliance officer explained that the only benefit in kind that counts for the purposes of the minimum wage is accommodation and that workers cannot agree to work for less than the minimum wage. Nine underpaid workers were entitled to over £;11,000 arrears.

...back to 26 September 2003

National Minimum Wage consultation

The Government has issued a consultation document setting out a number of proposed amendments to the National Minimum Wage Act 1998. The opportunity to make changes to the Act arises because of the Employment Relations Bill that is to be introduced for the 2003/04 Parliamentary session.

The proposals involve changes to the way in which the Act is enforced. The Inland Revenue is responsible for enforcement of the national minimum wage and is able to appoint enforcement officers to do so. The Department of the Environment, Food and Rural Affairs (DEFRA) enforces the agricultural minimum wage in England and Wales. Enforcement of the agricultural minimum wage is a devolved matter in Scotland and Northern Ireland.

In brief the proposals are:

• to give DEFRA the powers to appoint officers to enforce the agricultural minimum wage
• to allow disclosure of information obtained from an employer to the worker, and vice versa, while continuing to protect the worker's anonymity as far as possible
• to clarify fully in the legislation that enforcement notices may apply to former employees
• to allow officers to amend or withdraw enforcement notices and penalty notices if an error has been made or if new evidence comes to light, and to allow employers to appeal against the whole notice, not just the part that has been amended

Comments on these proposals are invited before the 31 October 2003 deadline. Full details, including the Regulatory Impact Assessment may be downloaded.
(Source: www.dti.gov.uk/er/nmw/condoc_aug03.pdf )
...back to 22 August 2003

National minimum wage

The new minimum hourly rates of pay from 1 October 2003 have been confirmed in The National Minimum Wage Regulations 1999 (Amendment) Regulations 2003. The hourly rate increases to £;4.50, the rate for workers between the ages of 18 and 21 increases to £;3.80, and the rate for employees aged 22 and over who are receiving accredited training during their first six months of employment also increases to £;3.80.

There is a specific change to the way in which the accommodation offset is calculated. The maximum amount that is permitted to be taken into account where living accommodation is provided is now calculated by multiplying the number of days in the pay reference period for which accommodation was provided by £;3.50. The previous alternative method of calculation using the number of hours work done in the pay reference period will no longer apply from 1 October. (Source: www.hmso.gov.uk/si/si2003/20031923.htm )
...back to 1 August 2003

Information for Farmers

Page 64 of the CWG2 Further Guide to PAYE and NICs gives information about benefits in kind provided to farm workers covered by the three Agricultural Wages Orders in force for England and Wales, Scotland and Northern Ireland. The requirements to 'take account of benefits that you provide free to employees when you work out their wages' and 'to show the value of benefits as a separate item on their payslips' are out of date. The Inland Revenue press office has confirmed that this information needs revising.

The only benefit-related provisions in the three Agricultural Wages Orders are rules that allow the provision of a house for a farm worker to be offset against the National Minimum Wage. There is also an extra-statutory concession (A60) that removes any tax liability where a lower-paid worker is able to take a cash alternative to living accommodation.

Otherwise, the provision of 'milk and other produce, coal and grazing rights' are taxable benefits that must reported on form P11D or P9D as appropriate.
...back to 18 July 2003

National Minimum Wage

The Employment Appeal Tribunal (EAT), in the case Joshi v. Sandercock, upheld an appeal against the decision of an employment tribunal that compensation was due on termination of Mr Sandercock's employment because he had been paid less than the national minimum wage (NMW).

Mr. Sandercock was paid a fixed net amount each week and the employer, Mr. Joshi, handled the tax and NICs deductions. The original tribunal had compared his net hourly rate of pay with the NMW and, as it was lower, had made an award for the shortfall during the period of employment.

The EAT agreed with Mr. Joshi's contention that the comparison with the NMW should be made using the notional gross pay, before the deduction of tax and NICs. The order for payment of the arrears was set aside.
(Source: www.employmentappeals.gov.uk/judge_fr.htm in the case Joshi v. Sandercock)
...back to 11 July 2003

New agricultural wages order

Pay rates for agricultural workers will increase by nearly 4% from 7 July 2003 and again, marginally, from 1 October 2003. The Agricultural Wages Board has set the new minimum rate for an adult standard worker (at age 19) at £;5.10 per hour. In October 2003, when the national minimum wage (NMW) rises to £;4.50, the standard rate will increase further to £;5.15, taking the weekly rate for 39 hours to over £;200 for the first time. The agreement is for 15 months, with the next review coinciding with the 2004 increase to the national minimum wage.

A new category of "manual harvest worker" has also been introduced, applicable to workers who work for not more than 30 weeks in a year. The hourly rate is set at £;4.30, rising to the NMW rate from October 2003.

Annual holiday entitlement, currently four weeks excluding public holidays, is increased by one day.

The Agricultural Wages Board for England and Wales has eight representatives from each of the National Farmers Union and the Transport and General Workers' Union, and five independent members appointed by DEFRA and the National Assembly for Wales. The Board is not allowed to set rates that are lower than the NMW.
(Source: www.defra.gov.uk/news/awb/awb203.htm)
...back to 20 June 2003

National Minimum Wage

The National Minimum Wage (Enforcement Notices) Act 2003 received Royal Assent on 8 May 2003 and comes into force on 8 July 2003.

On 16 August 2002, in the case of Inland Revenue v Bebb Travel plc, an Employment Appeal Tribunal held that a Revenue enforcement officer could only issue an enforcement notice requiring an employer to pay the minimum wage to a worker in respect of

• the worker's current and future pay periods, or
• the worker's current and future pay periods and past pay periods.

The effect of this decision was that an enforcement officer had no power to issue a notice in respect of past periods only and could not, therefore, issue a notice in respect of workers whose employment with the employer had already ended. However, until this decision, enforcement officers had been issuing enforcement notices that related to past periods only, particularly in cases where workers were no longer working for the employer in question.

The new Act, therefore, amends the National Minimum Wage Act 1998 so that enforcement officers do have the power to issue enforcement notices which relate to past pay periods in the case of some or all of the past or present workers concerned.
(Source: www.hmso.gov.uk/acts/acts2003/20030008.htm)
...back to 16 May 2003

National Minimum Wage

Following publication of the fourth report of the Low Pay Commission (LPC) on the NMW, the Government has announced that it has accepted most of the recommendations for increases to take effect from October 2003 and October 2004.

The LPC's key finding is that the NMW has had negligible adverse effects on employment and inflation and that, although some firms have found adjustment difficult, the impact on aggregate and sector wage bills has been minimal and much lower than the LPC originally anticipated. As a result, the intention is to move to a retrospective link with earnings inflation, with above average increases for the next two years. The increases planned for October 2003 and October 2004 will be between 7% and 8%.

The details are as follows:

• The adult rate of the NMW will be increased from £;4.20 to £;4.50 (a 7.1% increase) in October 2003, and to £;4.85 (a 7.8% increase) in October 2004. The 2004 rate is subject to confirmation by the Commission in early 2004.
• The development rate of the NMW, applicable to 18-21 year-old workers and to older workers in their first six months of employment while receiving accredited training, will increase from £;3.60 to £;3.80 in October 2003 and, again subject to confirmation, to £;4.10 in October 2004. However, the Government has yet again rejected the LPC's renewed recommendation that the adult rate should apply from age 21.
• The LPC has suggested that the Government should consider a minimum wage rate for 16 and 17-year olds. The Government will ask the LPC to consider the possible advantages and disadvantages of the proposal in the context of a wider review of education and training, and the system of financial support for young people.
• The accommodation offset, currently a maximum of £;22.75 per week will be increased to £;24.40 from October 2003 and to £;26.25 from October 2004. The hourly and daily rates will be scrapped as it is considered that the calculation of the offset is too complicated. Instead, where accommodation is provided for less than a full week, the accommodation offset should simply be reduced proportionately.

(Sources: www.lowpay.gov.uk/lowpay/lowpay-nmw.pdf
www.dti.gov.uk/er/nmw/statement2.pdf)
...back to 21 March 2003

National Minimum Wage and homeworkers

The Government has published a consultation document that considers options for improving the application of the NMW rules for output workers and, in particular, homeworkers. In 2001, the Low Pay Commission recommended that the operation of "fair estimate agreements" should be reviewed, following representations from employer and employee groups.

A fair estimate agreement is a device, defined in the NMW Regulations, for applying the NMW to "output workers", i.e. those whose earnings are related to their output rather than the time they work, generally using piece rates or commission rates and without supervision by the employer. They are not used for workers whose hours of work are controlled by the employer, as is commonly the situation of employees who are paid piece rates on their employer's premises. Such workers are classified in the Regulations as "time workers" and, even though their pay is calculated using piece rates, they must be paid the NMW for each hour they work.

There are two ways of ensuring that output workers are paid the NMW. The first is for the employee to record the total number of hours worked and to give that information regularly to the employer. Although the pay is calculated from piece or commission rates, the total pay for the pay reference period must be at least the number of hours they work, multiplied by the relevant NMW rate.

Alternatively, the employer and workers can enter into a "fair estimate agreement". This is a written agreement, entered into before the first pay reference period to which it relates, that defines the number of hours that it is expected that the worker will spend in performing specific tasks in the pay reference period. If the amount of work varies from period to period, a new agreement is required for each period. To be a "fair" agreement, the employer must be able to show that the number of hours is at least four fifths of the number of hours that other workers would, on average, spend to produce the same output.

The advantage of a fair estimate agreement to the employer is that, if the worker works more than the agreed number of hours, the NMW must only be met for the estimated hours. Any work performed outside of the estimated hours need only be paid at the piece rate, even if the pay for the extra work is less than the NMW.

As originally conceived, fair estimate agreements were intended to benefit both employers and workers. The "fair" element of the agreement is intended to prevent employers from deliberately setting unachievable targets. The "estimate" element is intended to ensure that employers do not need to pay additional hours to workers who take longer than necessary to do the required work. However, representations from employers of homeworkers and from representatives of homeworkers indicate that the agreements are not working well.

Employers report that they tend not to use them because they are seen as complex, difficult to administer, and require new agreements to be made whenever the work to be performed varies. Homeworkers complain that, where they are used, they are often imposed rather than agreed, and the number of hours needed to complete the tasks is set unreasonably low so that few are actually receiving the NMW.

The Government proposes to replace fair estimate agreements with a requirement for all output workers to be paid either (1) the minimum wage for all hours worked, or (2) "fair piece rates" that are linked to the NMW. The change would involve

• removing the "four-fifths" rule,
• removing the requirement to estimate the amount of time needed to complete a task, and
• removing the requirement for the employer and employee to enter into an agreement, and replacing those provisions with
• a requirement for employers to set a fair piece rate that is linked to the NMW, and
• a requirement for employers to issue a notice providing details of the fair piece rate.

The Government is seeking comments from interested parties on these proposals by 9 May 2003. The full consultation document is available at www.dti.gov.uk/er/nmw/fairest.pdf .
Payroll Briefing 19 - 14 April 2003

National Minimum Wage

The Government has published a new Bill, the National Minimum Wage (Enforcement Notices) Bill, to correct a situation highlighted by a decision of the Employment Appeal Tribunal in the case Inland Revenue v. Bebb Travel plc on 16 August 2002. In the three years that the legislation has been in place, Revenue officers have regularly issued enforcement notices against employers in respect of breaches of the national minimum wage that had occurred in the past but that were not ongoing. The EAT ruled that the legislation did not permit such enforcement notices to be issued. Past breaches may only be enforced where the breach is still current.

As this was never the intention of the legislation, the new Bill allows specifically for enforcement notices to be issued simply for past breaches. The new Bill will not be enacted until early 2003, but the new rules will apply retrospectively.
Payroll Briefing 13 - 6 January 2003

National Minimum Wage

Following increases to the national minimum wage rates in October, the Government is already looking forward to further possible changes in 2003. The Low Pay Commission (LPC) has been asked to produce a new report by February 2003, with recommendations for increases in October 2003 and October 2004. The current adult rate is £;4.20 per hour, starting at age 22.

The TUC's view is that the minimum wage should be increased substantially to between £;5.00 and £;5.30 by 2004, the adult rate should apply from age 18, and there should be new protection for those under 18.

Urging the LPC to be cautious, the CBI is concerned that the level of increases proposed by the TUC will impact on vulnerable business sectors and create unemployment. It argues that an increase to more than £;4.50 could price people out of work and suggests that the national minimum wage should set a floor on wages, rather than being used as a tool for forcing up pay levels. The CBI also points out that an increase in October 2003 will come only six months after the April 2003 increase in National Insurance contributions which, it says, will cost firms £;3.9 billion in 2003 and £;4.1 billion in 2004, nearly double the cost of the minimum wage when introduced in 1999.

Most of the LPC recommendations in the last Report have been implemented, with the notable exception of reducing the adult age to 21. The Government has now published its own detailed submission to the Low Pay Commission, setting out recent developments for specific groups and workers and providing evidence across particular groups of employees and the economic effect of the national minimum wage to date.

The full text of the Government's submission is available at www.dti.gov.uk/er/nmw/evidence02.pdf .
Payroll Briefing 11 - 28 November 2002

National Minimum Wage

Just in advance of the latest increases in the minimum wage from 1 October, the DTI has published its third annual National Minimum Wage Report. Ensuring compliance has been the responsibility of the Inland Revenue since April 1999 and, in the three year period since then, the Newcastle-based helpline has responded to more than 275,000 enquiries and handled more than 7,500 complaints about non-payment of the minimum wage. Complaints are investigated by 16 compliance teams with 97 staff.

In the year to March 2002, 36% of employers investigated by compliance officers were found not to be paying the minimum wage and over £;5 million in wage arrears were recovered for the employees concerned.

The report, available at www.dti.gov.uk/er/nmw/2002AR.pdf , contains many real-life cases of investigations. The following examples illustrate some common misunderstandings about the national minimum wage.

• A home worker assembling crackers complained about non-payment of the minimum wage. The employer was initially of the opinion that home workers were not "workers" for the purposes of the legislation, but after the compliance officer explained the position, he accepted that they were and obtained assistance in drawing up a fair estimate agreement. Over £;8,600 in wages arrears was identified for the workers involved.
• A worker complained that, while employed as a night sitter in a residential home, she did not receive the minimum wage. The compliance officer visited the employer who agreed payment of arrears to the worker but suggested that they had employed a similar payment practice to that of a local health trust. The compliance officer later visited the health trust concerned. Arrears totalling £;25,000 benefiting almost 100 workers were identified.
• A compliance officer investigated a failure to pay the minimum wage to an 81-year-old worker who was employed as a car polisher. The company was unaware of their liability to pay pensioners the minimum wage and promptly paid arrears. Arrears identified totalled £;3,000.
• Four apprentices complained about non-payment of the minimum wage to the helpline. They were employed by an engineering company, which employed 240 workers. A review of the employer's records established that the company had failed to increase wages once the exemption period for the apprentices had expired. Twenty two apprentices were identified as not receiving at least the minimum wage. Wage arrears identified totalled £;12,017 with the largest individual payment being £;2,939.

Payroll Briefing 8 - 10 October 2002

National Minimum Wage

The new rates take effect from 1 October 2002; £;4.20 for adult workers aged 22 and over, £;3.60 for young workers between the age of 18 and 21, and £;3.60 for adult workers in their first six months in a new job while they are receiving accredited training.

The recently published National Minimum Wage Regulations 1999 (Amendment) Regulations 2002 clarify the implementation date for the new rates. The relevant rate for any particular worker is the rate in force on the first day of the worker's pay reference period. For example, as 1 October 2002 is a Tuesday, weekly employees whose pay period runs from Sunday to Saturday will qualify for the new rate from Sunday, 6 October 2002.
Payroll Briefing 6 - 12 September 2002

NMW - Accommodation offset

Confirmation has now been provided of the new rates of accommodation offset that will apply in determining compliance with the National Minimum Wage (NMW). The current £;2.85 per day (50p per hour) increases to £;3.25 per day (57p per hour) from 1 October 2001.

If an employer makes a charge or a deduction for the provision of living accommodation, the amount that may be offset against the NMW is limited to the lower of

- the total number of hours worked in the pay reference period, multiplied by 57p, but reduced pro-rata to the availability of the
accommodation, and
- the total number of days in the pay reference period for which accommodation was provided, multiplied by £;3.25.

The maximum offset possible from the lower of these two calculations is £;22.75 per week. - Payroll Briefing 210 - 11 October 2001

National Minimum Wage (2)

The Government has accepted the recommendations of the Low Pay Commission, in volume 2 of its third report, and the National Minimum Wage (NMW) for young people under the age of 22 will increase from £;3.20 to £;3.50 per hour from 1 October 2001. Subject to "favourable economic conditions", the Government will increase the rate again to £;3.60 on 1 October 2002.

The increase in October this year will give a further £;10.50 a week to a young person working 35 hours a week, an increase of over 9%.

The other special rate, applicable to workers who are age 22 or above, within their first six months of employment with a new employer and receiving relevant training, will also increase to £;3.50 in October 2001, and to £;3.60 in October 2002.

The terminology used to describe the different rates of the NMW is changing. The "18 but under-22" rate and the "first 6 months" rate are not given names in the original 1999 Regulations. When the "18 but under-22" rate was first increased in June 2000, the Regulations called it the "development rate for young workers". In the 2001 Budget documents, both rates were called "development" rates.

In the latest announcements, the DTI refers to the "18 but under-22" rate as both the "youth" rate and the "development" rate and, significantly, says that it may also be paid to workers in the "first 6 months" category. It appears, therefore, that, despite the distinction in the original Regulations, the Government now views the NMW as only two rates, the adult rate and the development rate, the latter applying both to workers under 22 and to older workers in their first six months while receiving training.

Therefore, the confirmed NMW hourly rates are:

Despite the recommendations of the Low Pay Commission, the Government has again decided not to reduce the age at which the adult rate applies to 21. The argument this time is that it would give 21-year old workers a 28% increase in pay.

A further change in the NMW rules from October 2001 is that the weekly accommodation offset will increase from £;19.95 to £;22.75, or £;3.25 per day. This means that, where an employer provides accommodation with the job for seven days in a week, £;22.75 may nominally be added to the pay to check whether or not it meets the NMW rate for that week. - Payroll Briefing 205 - 4 July 2001

National Minimum Wage (1)

The Government has announced that the National Minimum Wage for workers aged 22 and over will be increased from £;3.70 to £;4.10 from October 2001. It will be further increased to £;4.20 in October 2002, subject to the economic conditions prevailing at the time.

The announcement came much earlier than expected. The Low Pay Commission (LPC) had been asked in December to review the NMW rates and to report in July 2001. However, the LPC reported, "It has been emphasised to us repeatedly, both in the oral and written evidence, that the length of notice which employers receive to prepare for changes arising from our Report is critical to their ability to cope with changes. We have concluded, therefore, that we need to submit our Report earlier than the terms of reference proposed."

The first volume of the LPC's report was published on 5 March and the Government responded promptly to confirm the new adult rate from October 2001. With regard to the further small increase in 2002, the LPC stated, "We were aware that businesses in low-paying sectors, and smaller firms, would need to absorb and adapt to the increased costs. We considered it prudent, therefore, to recommend a small further increase for October 2002 before the minimum wage is reviewed in full again."

The second volume of the LPC's report is expected in May. That is expected to address the age from which the adult rate is paid, make recommendations on the youth rate and the development rate, and present the LPC's view of the interaction of the NMW with the tax and benefit systems and their ideas for uprating the NMW in future. - Payroll Briefing 197 - 15 March 2001