Calculating pay for National Minimum Wage purposes

08 March 2017


The recent naming of 359 businesses who failed to pay their employees the minimum wage has resulted in some CIPP member queries around the calculation of annual hours for salaried workers.

After the Department for Business, Energy & Industrial Strategy (BEIS) published the latest list of national minimum and living wage offenders, there was publicity about certain employers having been found to not be calculating pay correctly and therefore paying below the minimum wage. This prompted some members to contact our advisory service to double check their calculation method as reports were referring to the figure 52.17 for use when calculating an hourly rate for a salaried worker.


For clarity, HMRC has confirmed the following:

“Regulation 21(3) National Minimum Wage Regulations 2015 sets out

(3) The second condition is that the worker is entitled under their contract to be paid that salary or salary and performance bonus in respect of a number of hours in a year, whether those hours are specified in or ascertained in accordance with their contract (“the basic hours”).

In order to comply with this requirement, employers need to either specify the annual hours in the workers’ contracts or provide sufficient information in the contract to allow the annual hours to be ascertained for the full calendar year.

HMRC does not specify the use of a particular divisor: if an employer has a credible system for determining the annual hours, HMRC will use that when investigating potential NMW breaches.

The BEIS guidance Calculating the minimum wage provides information for employers at page 37.”

The relevant section of the NMW Manual can be found here.