National minimum wage - record-keeping, calculating arrears and enforcement
Calculating national minimum wage arrears from 6 April 2009
Workers are entitled to have any arrears of the national minimum wage (NMW) repaid according to a formula using current NMW rates. This means workers will be due more arrears than they were originally underpaid if current rates are higher than the rates that applied at the time of the underpayment.
If you need to calculate and pay arrears, the formula you should use is (A/R1) x R2, where:
- A is the amount of the underpayment for the pay reference period (PRP)
- R1 is the worker's NMW rate which applied at the time of the underpayment
- R2 is the worker's current NMW rate as explained below
The 'current NMW rate' is the corresponding rate for the age band that applied to the worker at the time of the underpayment. So a worker who was eligible for the 16 to 17-year-old rate at the time of the underpayment will be now be entitled to be repaid their arrears using the current 16 to 17-year-old rate in the formula, where this is higher than the 16 to 17-year-old rate that applied at the time of the underpayment.
Example of arrears calculation from 6 April 2009
A 45-year-old time worker was paid £184 for 40 hours worked in the PRP 1 August 2008 to 7 August 2008.
In May 2009, realising that he had underpaid the worker in the above PRP, the employer paid the worker arrears of the NMW.
The main NMW rates for the relevant periods were:
- £5.52 - for PRPs between 1 October 2007 and 30 September 2008
- £5.73 - for PRPs between 1 October 2008 and 30 September 2009
The employer calculated the worker's arrears by finding the higher of:
- the underpayment, ie the difference between the amount the employer should have paid at the time and the amount actually paid
- the amount calculated using the formula
In the case of 1 above, the employer should have paid the worker £220.80 (ie 40 hours x £5.52) at the time of the underpayment but actually paid £184. So the underpayment was £220.80 - £184 = £36.80.
In the case of 2, the amount of arrears using the formula was (£36.80 ÷ £5.52) x £5.73 = £38.20. This was (underpayment ÷ the NMW rate at the time of the underpayment) x the corresponding rate.
The higher amount was calculated under 2 - and the arrears due to the worker were therefore £38.20.
If the current NMW rate is higher than the original corresponding rate for the PRP in which the worker was underpaid, the arrears will always be higher than the amount originally underpaid.
Changes in NMW rates after making arrears calculations
Note that if NMW rates change between the date you calculate the arrears and the date that a worker is repaid the arrears, you will need to redo the calculation.
Subjects covered in this guide
- Introduction
- Record-keeping - who needs to keep records and why
- Record-keeping - what records must be kept and for how long?
- National minimum wage enforcement - how the national minimum wage is enforced
- National minimum wage enforcement - inspections, underpayments and penalties
- National minimum wage enforcement - employment tribunal claims
- National minimum wage enquiries
- Calculating national minimum wage arrears from 6 April 2009
Pay and Work Rights Helpline
0800 917 2368
Also on this site
- Understanding national minimum wage law
- National minimum wage - the basics and who is entitled to it
- National minimum wage - who must pay it and how it's calculated
- National minimum wage - what counts as NMW pay, benefits in kind and accommodation
- National minimum wage - hours for which the NMW must be paid
