Employment tax rates
This article describes rates that are associated with employment.
National minimum wage
The National Minimum Wage became law on 1 April 1999. The rates are shown in the following table.
| Age group | Date | Rate per hour |
|---|---|---|
| 16 and 17 years old | from 01/10/2007 | £3.40 |
| from 01/10/2006 | £3.30 | |
| 18 to 21 years old | from 01/10/2007 | £4.60 |
| from 01/10/2006 | £4.45 | |
| 22 years and over | from 01/10/2007 | £5.52 |
| from 01/10/2006 | £5.35 |
Note: 16 and 17 year old apprentices will be exempt from the new young workers rate.
National minimum wage exemptions
The national minimum wage does not apply to:
- the genuinely self-employed;
- volunteers;
- 16 and 17 year old apprentices;
- people under 18 prior to the introduction of the new rate for 16 and 17 year olds from 1 October 2004;
- apprentices over 18 but under 26 in the first twelve months of their apprenticeships;
- members of the armed forces;
- people working and living as part of a family (for example au pairs).
There are no exemptions according to size of business or because of sector, job or region.
A website is run by the Department of Trade & Industry, giving help to workers and employers when trying to find out how the national minimum wage affects them. For more details, visit the Tiger web site.
Fair piece rates
From October 2004, the Government is proposing that employers will have to pay their workers the minimum wage for every hour they work or a fair piece rate initially set at 100% of the minimum wage. The rate will increase to 120% of the minimum wage in April 2005 at which point most homeworkers will receive the minimum wage.
What counts as pay?
In addition to a worker's basic pay, there are other elements of pay that may count towards the national minimum wage hourly rate, e.g. incentives, bonuses and performance-related pay. Extra money above basic pay e.g. overtime or shift work premiums do not count. Regional Allowances which are not consolidated into an employee's basic pay do not count. Benefits in kind are excluded except accommodation.
Calculating the number of hours
The number of hours for which workers must be paid the national minimum wage is calculated according to the type of work they do. There are four distinct types:
- time work: the number of hours or period of time is set by the employer;
- salaried-hours work: a contract to work a set number of basic hours each year with an annual salary paid in equal instalments;
- output work: workers paid according to their productivity e.g. products or sales. An employer may have a written agreement with a worker stating a 'fair estimate' of the number of hours they should work;
- unmeasured work: for workers where there are no set hours. An employer may have a written agreement setting out the average number of hours to work each day.
Although, employers need to keep sufficient records to prove that they are paying the national minimum wage, it is up to them what form these records take. In a dispute about whether the national minimum wage has been paid, the burden of proof will rest with the employer.
For many employers with workers whose earnings are clearly above the minimum wage, it will probably not be necessary to keep special national minimum wage records.
Workers rights
Workers have a right to:
- see their own pay records (if they have good reasons to suspect they have been underpaid);
- make a complaint to the enforcement agency or take their case to an employment tribunal or to a civil court to complain that the employer has not paid the national minimum wage;
- make a complaint to a tribunal that the employer has failed to produce pay records;
- legal protection against being sacked or victimised because of their right to the national minimum wage or because they have complained about non-payment.
Dismissing a worker because they become eligible for the national minimum wage, or a higher rate, may count as unfair dismissal. Workers do not have to serve any qualifying period in order to gain protection against this form of unfair dismissal.
Enforcement of the national minimum wage
HM Revenue & Customs has been appointed to enforce the national minimum wage. In the agricultural sector, Agricultural Inspectors will enforce both the national minimum wage and the agricultural minimum wage.
Failing to comply with the national minimum wage act
It is a criminal offence to:
- refuse or wilfully neglect to pay the national minimum wage;
- fail to keep adequate records;
- keep false records;
- obstruct an enforcement officer.
National minimum wage compliance officers can issue an enforcement notice where they discover an underpayment. This may be followed by a penalty notice, a civil fine, worked out on the basis of £7.20 for each day an employer does not comply with an enforcement notice for each worker.
Officers will give employers every chance to comply before considering any penalty. The maximum penalty is a fine of £5,000 for committing a criminal offence.
Further Information
The following free publications are available from the DTI Publications Orderline (0870 1502500):
- A detailed guide to the national minimum wage URN 99/662
- National minimum wage - a short guide for employers URN 99/663
- National minimum wage - a short guide for employees URN 99/664
For further information phone the national minimum wage helpline (0845 6000 678 - local rates apply).
If you are in the agricultural sector, telephone: 0845 000 0134 (England and Wales), 0131 2446397 (Scotland), 028 90520838 (Northern Ireland).
Further details on the minimum wage can be found on the Department of Trade and Industry Web site. Information can also be found on the HM Revenue & Customs website.
Employers can reimburse employees for business miles travelled using their own cars up to the maximum rate per mile. Any payments over the rates will be taxable on the employee. If payments are made which are below the maximum rate per mile, the difference can be claimed by the employee, usually via the self assessment tax return form.
AMAP rates (from April 2002)
The following rates apply from April 2002.
| Vehicle | Business miles travelled | |
|---|---|---|
| First 10,000 (£ per mile) | Over 10,000 (£ per mile) | |
| Cars and vans | 40p | 25p |
| Motorcycles | 24p | 24p |
| Bicycles | 20p | 20p |
A passenger allowance of 5p per passenger may be payable in some circumstances. The passenger must be a fellow employee and the employee must receive the allowance from the employer.
This page was last reviewed on 16 April 2007. The information may not reflect changes in legislation made after this date.
This is only a guide to your tax position and should not be relied on in place of professional accounting or tax advice. Any calculated figures are illustrative and are based on the data you provided.
