Tips, Gratuities and the National Minimum Wage

09 October 2017

The National Minimum Wage is a specified minimum hourly rate of pay, which most workers in the UK over school leaving age are entitled to. All employers are obliged to pay the National Minimum Wage, irrespective of the size of the company. Even if you are the only employee you are still entitled to be paid the National Minimum Wage (NMW).

How to Calculate if You are Receiving NMW

A worker’s average hourly rate is used to determine whether they have received the NMW. This is calculated on the basis of:

  • The total amount of pay earned over the relevant “pay reference period”
  • Divided by the total number of hours worked over that period.

The “pay reference period” is the period used for calculating hourly pay. It must be a period of one month or shorter. For example workers who are paid daily will have a pay reference period of one day and workers who are paid weekly will have a pay reference period of one week etc.

Tips and Gratuities

Before 1 October 2009, tips and gratuities paid by the employer through its wages system could be taken into account when calculating whether an employee had received the National Minimum Wage.

This changed from 1 October 2009 when there was a change in the law. From that point onwards an employer has not been able to take account of tips and gratuities when calculating if a worker has received the National Minimum Wage.

This was a welcome change, meaning lots of workers on low incomes began to receive more as tips were given on top of National Minimum Wage and not as part of it.

When are You Not Entitled to NMW?

There are some workers who are not entitled to receive NMW. Some examples of workers who may not receive the National Minimum Wage are:

  • People who are self employed
  • People who are aged under 16
  • People who are living with a family working as an au pair, if they do not pay accommodation or food costs
  • People who are in the armed forces
  • People who are volunteering
  • Prisoners who are working whilst imprisoned.

What to Do if You Don’t Think You’re Being Paid the NMW

If you think your pay is too low and is below the National Minimum Wage, the first thing to do is to speak with your employer about this and request details of your employment payment records.

If you have not been receiving the National Minimum Wage you can claim the arrears from your employer and also make a complaint to HM Revenue & Customs (providing you are not in one of the groups described above).

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