Understanding the National Minimum Wage: Salaried Work vs. Other Categories

30 July 2024

The recent changes to the National Minimum Wage (NMW) and National Living Wage (NLW) have brought significant implications for both employers and employees in the UK. From 1 April 2024, not only did the rates increase by nearly 10%, but the age threshold for the NLW was also lowered to include 21–22-year-olds. While these changes are widely publicised, there's a crucial aspect of NMW regulations that often goes overlooked: the classification of work types and how they impact wage calculations.

The four types of work for NMW purposes

The National Minimum Wage regulations recognise four distinct types of work:

Salaried work
Time work
Output work
Unmeasured work

Each category has its own set of rules for calculating whether an employee is receiving the NMW. However, there's a common misconception that all employees who receive a regular salary automatically fall under the 'salaried work' category. This assumption can lead to serious compliance issues and potential underpayment of wages.

Salaried work: Not just about receiving a salary

To qualify as 'salaried work' under NMW regulations, an employment arrangement must meet specific criteria:

The employee must be paid an annual salary
The salary must be paid in equal instalments
The employee must be entitled to a set number of working hours per year
The employee must not be entitled to additional pay for hours worked beyond the set amount

If any of these conditions are not met, the work may fall into one of the other categories, most commonly 'time work'.

The implications of misclassification

Misclassifying an employee's work type can have serious consequences:

Underpayment of wages: If an employee is incorrectly treated as salaried when they should be classified under time work, they may be underpaid for additional hours worked.
Legal penalties: Employers found to be in breach of NMW regulations can face significant fines and may be required to backpay underpaid wages.
Reputational damage: Companies found to be non-compliant with NMW regulations may face negative publicity and damage to their employer brand. Earlier this year, HMRC published its latest name and shame list of companies that fell afoul of NMW regulations and were found to have underpaid staff. The 524 employers were found to have failed to pay their workers nearly £16 million in a clear breach of the National Minimum Wage (NMW) law, leaving over 172,000 workers out of pocket.

Common scenarios leading to misclassification

Several situations can lead to the misclassification of work types:

Irregular hours: If an employee's hours vary significantly from week to week, they may not meet the criteria for salaried work.
Overtime pay: Employees who receive additional pay for overtime are likely to fall under the 'time work' category.
Salary deductions: If an employer makes deductions from an employee's salary for periods of absence, this may disqualify the arrangement from being considered salaried work.

Ensuring compliance: Best practices for employers

To avoid issues related to work type classification, employers should:

Ensure that contracts clearly define the type of work and how pay is calculated.
Keep detailed records of hours worked, especially for employees whose hours may vary.
Conduct periodic reviews to ensure that all employees are receiving at least the NMW for their work type and age group.

The distinction between salaried work and other work types under NMW regulations is more complex than many realise. Employers must be vigilant in correctly classifying their employees' work to ensure compliance with the law and fair compensation for all workers. As the NMW and NLW rates continue to evolve, staying informed and proactive in wage management practices is crucial.