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National Minimum Wage – don’t panic!

07 July 2017

John Lewis has suffered very public criticism in relation to alleged payment of some of its seasonal workers below National Minimum Wage (NMW). This has caused a good deal of concern among schools, which clearly engage employees/workers to perform work at certain times of the year, while not necessarily requiring performance throughout the school holidays.

The concerns focus primarily on term time support staff whose roles carry smaller salaries. However, I do not think that schools need to panic.

National Living Wage is a minimum level of pay set for workers aged 25 and over. Rules that apply to the NMW rates for workers under 25 also apply to the National Living Wage. For the purposes of this update I will refer to NMW. The law has not changed, but some concern has arisen following the recently updated guidance from the Department for Business, Energy and Industrial Strategy: “National Minimum Wage and National Living Wage: Calculating the Minimum Wage” (April 2017).

The hours an employer must pay a worker NMW for depends on the type of work they do. For NMW purposes there are four different types of work that a worker may be doing. In the case of support staff who work during term time only, the key consideration is likely to be whether they are performing, for NMW purposes:

  • “Time work”; or
  • “Salaried-hours work”.

Where employees are doing salaried-hours work, there should not be any difficulty.

What is ‘time work’?

Time work is where the school pays an employee by reference to the number of hours they actually work. There may be a contract to perform a particular job and the employee receives payment for the actual hours worked each week/month.

The method of calculating the basic minimum wage for each pay reference period, in simple terms, is to divide the pay received (for NMW purposes) by the number of hours worked (for NMW purposes) during the reference period.

A time worker will be regarded as working where he/she is: at work and required to be at work; on call at or nearby to their place of work; travelling on business or training.

Critically: When a time worker is absent from work (e.g. during normal school holidays/annual leave/sick pay), neither the hours nor the pay count for NMW purposes. Only the time when the employee is actually working count. Therefore, if pay is ‘averaged’ over the year, pay during the periods when the employee is actually performing the duties may fall below NMW.

What is ‘salaried-hours work’?

Schools frequently employ support staff to work only during term time but pay an ‘annual salary’ (as against an ‘hourly rate’) in monthly instalments throughout the whole year – this describes salaried-hours working. Any concern regarding NMW would more commonly arise in respect of lower paid support staff roles.

In order for a worker to be viewed as a salaried-hours worker, the following criteria must apply:

  • They are under a contract to do salaried-hours work;
  • They are paid under their contract for a set basic number of hours every year;
  • They are entitled under their contract to an annual salary for those hours;
  • They are paid in equal weekly or monthly instalments

If the employee actually works more or less hours in some months, this does not prevent the employee from being a salaried-hours worker, as long as the instalments remain the same.

It is preferable to show the total basic hours required for the full year in the contract. It must be possible to calculate the total number of working hours in relation to the full year from the terms of the contract. In the absence of a clear statement of the full year’s hours, it may be difficult to calculate the total hours in the case of a term-time working employee because there would be no set number of hours for every month of the year, for example.

Salaried-hours work is about the payment of an annual salary provided for an ascertainable number of basic hours in a year.

In the same way as time work, a salaried-hours worker will be regarded as working where he/she is: at work and required to be at work; on call at or nearby their place of work; travelling on business or training.

If the school pays normal salary while the employee is absent from work under the contract (e.g. during normal school holidays/ annual leave/ sickness/ rest breaks), this time of absence counts towards the time worked for NMW purposes. Periods of absence when a reduced level of salary is given (e.g. half sick pay) are ignored.

The number of salaried hours to be paid for each pay reference period is calculated by dividing the employee’s total basic annual hours by the frequency of the pay period i.e. 12 months.

In effect: this means that for NMW purposes, in the case of a salaried-hours employee, the payment received when the employee is not present during term time, and is not required to attend school during normal school holidays, or is on annual leave during normal school holidays is also taken into account.

Summary

The School’s preference would be to characterise term time working contracts as salaried-hours contracts.

The contract must expressly show in its terms:

  • The basic number of hours for which the employee will be paid over the whole year (or it must be possible to calculate this from the information in the contract)
  • The employee’s entitlement to an annual salary.

If pay is expressed to be on an hourly pay rate, this may increase the risk of a time work arrangement, which increases the risk of the technical NMW claim or unlawful deduction from wages claims of the type highlighted by the John Lewis case.

In view of this, it would be advisable to audit term time contracts in order to ascertain which employee contracts may pose such concerns.

It may be prudent to clarify the existing arrangements with any contracts which are considered risky so that those contracts qualify as a salaried-hours contract i.e. a clear statement of the annual basic hours and entitlement to an annual salary.

For further advice, please call us on 01483 543210 or alternatively email enquiries@barlowrobbins.com

By Ben Collingwood

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