NATIONAL MINIMUM WAGE REGULATIONS
SIX: DETERMINING THE HOURS WORKED IN A PAY REFERENCE PERIOD
explains Regulations 12-18 which set out how to calculate how
many hours a worker has worked for NMW purposes. It considers
different types of work as defined in Regulation 2, in particular
those which pose difficulties for applying an hourly rate such
as jobs which do not have timed hours, e.g. commission work or
piecework; and other jobs which specify tasks but not hours of
hours worked in a pay reference period
work (Regulation 12)
NMW is a rate which must be paid on average for all hours worked,
as determined in accordance with the Regulations, in the pay reference
period. The hours worked by many workers are already recorded
or contractually specified. Such workers are considered to be
doing "time work".
12 states that the hours of time work a worker works in the
pay reference period are, for the purposes of the NMW, the total
number of hours of time work he works in the pay reference period.
For workers who do time work, this regulation, taken with the
definitions and other interpretative provisions on time work,
determines the total amount of time work done in the pay reference
period. If those workers also undertake other types of work, e.g.
some output work or some "non-hours work", then the relevant hours
worked of output work or non-hours work, calculated in accordance
with Regulations 13-18, will have to be added to the hours
of time work to obtain a figure for total hours worked for NMW
certain types of work such as output work or non-hours work, the
number of hours worked by a worker may well not be recorded by
the employer or contractually specified and it may not be a simple
matter to record them. Regulations 13-18 provide a means
of determining hours worked for NMW purposes in such cases. This
is considered to be an easier approach for employers and workers
than to require that all the hours worked must be recorded.
see the definitions of "time work",
"output work" and "non-hours work" in Regulation 2(1).
work" (Regulations 13 - 15)
NMW is set as an hourly rate, not a piece rate. Attempting to
define different piece rates for all the different items produced
by workers on piece rates would be an impossible task. This still
leaves the problem of how to apply the hourly rate to pieceworkers
and others paid by reference to output. In order for the NMW to
be applied to these workers, the Regulations need to provide a
means of arriving at the number of hours worked by them for NMW
of Regulations 13-15
Regulations provide two alternative ways of determining the number
of hours of output work done by a worker in the reference period
for NMW purposes:
the approach under Regulation 13(1) which defines the
hours of output work worked in the pay reference period as the
total number of hours of output work worked for the purposes
of the NMW. This should work satisfactorily in the case of output
workers whose hours are controlled by their employer - as is
possible where, for example, they work on the employer's premises
(e.g. some pieceworkers and some telesales agents). In these
cases, the employer can simply keep a record of the hours the
workers work if he did not do so before. This would not compel
the employer to pay by reference to hours, where workers earned
the NMW through the output rate alone; but where they did not
earn the NMW through the output rate alone, the employer would
have to pay additional wages to make up the difference between
what they had earned through the output rate, and the level
of the NMW. The Regulation 13(1) definition applies unless
the hours of the worker are not controlled by the employer (see
Regulation 13(2)); and the conditions of Regulation
14(1) are met.
the approach under Regulation 14(1) which is designed
to enable the NMW to be applied where no working hours are set,
as will often be the position with homeworkers and commission
workers. It provides two main conditions that must be met: there
must be an agreement between the worker and employer, setting
out an estimate of hours the worker is likely to work in a full
working week. The worker must also be entitled to payment of
an agreed piece rate or commission rate. Regulation 15
covers the situation where a worker works for longer or for
less than the agreed hours; and what happens if the worker produces
more or less than the output needed to earn the NMW through
the output rate alone.
13 establishes a "default" mechanism that will apply unless
(a) the worker's hours are not controlled by the employer and
(b) an agreement is made under Regulation 14(1) and the other
conditions in that Regulation are met. The default mechanism is
a straightforward approach which requires all the time that a
worker spends doing output work in a pay reference period to be
determined and totalled. The number of hours worked could be based
on a claim by the worker or on records kept by the employer. This
approach should suit all situations where output workers are required
to work for a specified number of hours, for example, pieceworkers
who work on the employer's premises for specified hours.
68. In practice,
under this approach the worker must simply be paid at least at
the level of the NMW for the number of hours he has worked. For
example, a pieceworker is paid £20 per 100 widgets, works
an 8-hour day and is paid weekly. If he produces 100 widgets per
day, the equivalent £2.50/hour will need to be supplemented,
at the end of the (weekly) pay reference period, through a lump-sum
payment of £1.10/hr x 40 hours = £44.00. Alternatively,
the employer could raise the piece rate to £29 per 100 widgets
which converts to an hourly rate of £3.62, assuming the
employee maintains the same output.
output workers have no hours, as in the case of home workers and
many commission workers, there is likely to be greater uncertainty
for the employer about the hours which the workers work in practice.
The arrangements in Regulation 14 have therefore been designed
as an alternative method. In order for this alternative arrangement
to operate, the conditions which must be met under Regulation
must be a prior written agreement between the worker and his
employer, setting out a fair estimate of the number of hours
which the worker is likely to work in a full working week. This
estimate is then divided by the number of days on which the
worker normally works during the week, in order to produce an
average daily number of hours. One effect of this "averaging"
process is that the arrangement caters for output workers who
work part-time or who work irregular patterns of hours. It does
not affect the pay reference period which may be daily, weekly
or any other period up to one month;
- the estimate
must be a "fair" one, i.e. it should reasonably reflect the
amount of output work to be done. In particular, Regulation
14(2) provides that the estimate is not "fair" if the employer
cannot show that the estimated hours are at least four-fifths
of the number of hours that ordinary workers would take to do
the same work. This provision prevents unrealistically low estimates
of "guaranteed-NMW" hours and is considered to set a fair threshold;
- the worker
must keep a record of the hours of output work he does and must
supply a copy to the employer as soon as reasonably possible
after the end of the pay reference period. It is necessary for
the worker to keep such records - they must be kept and it is
clearly impractical for the employer to keep them. The employer
is required by Regulation 27 to maintain records showing
that the NMW has been paid and will be able to use these "output
worker" records for this purpose where appropriate;
- the worker
must be entitled by contract to be paid the agreed piece rate
or commission rate for the output completed by the worker in
the pay reference period, and for output work done in the pay
reference period leading to a sale or transaction. This covers
cases where "output work" consists of the production of "pieces",
of sales on commission or of the making of contacts leading
to a subsequent sale. The effect is that the "output worker"
must be paid at the agreed rate and will be entitled to the
NMW for each hour he is treated as having worked (see the explanation
of Regulation 15). In practice, the agreed rate should
therefore be set to enable at least the NMW to be paid for each
example, the agreement must set a "fair estimate" that must be
at least four-fifths of the number of hours that an ordinary worker
would take to do the same tasks (say, 16 hours if an ordinary
worker would take 20 hours). These hours count as "NMW-payable
hours", subject to any adjustment under Regulation 15. In addition,
the agreement must show the daily average hours: assuming the
worker works for 4 days/week, this would amount to 4 hours/day.
14(3) provides that the agreement relating to hours of output
work does not vary the terms of the worker's contract. Its sole
function is to enable hours of work to be determined for NMW purposes.
15 prescribes how to establish the hours which an output worker
who has entered into an agreement under Regulation 14(1) is to
be treated as having worked.
combined effect of Regulations 15(1) and (2) is as follows:
- if the
worker works the same or more hours than the number of hours
resulting from multiplying the estimated average daily number
of hours (as specified in the agreement under Regulation 14(1))
by the number of working days in the pay reference period (the
"ascertained hours"), then the total number of hours of output
work which are to be treated as worked in the pay reference
period is the number of hours produced by that multiplication.
The employer is not therefore liable to pay the worker the NMW
rate for any extra hours over and above that number. However,
any extra output must be paid for at the agreed output rate.
This provides the worker with a guaranteed basic income up to
an agreed number of hours. If the worker wishes to work longer
hours and provides higher output, he must be paid accordingly;
- if the
worker works for fewer hours than the "ascertained hours", then
the total number of hours of output work worked in the pay reference
period is the actual hours worked. This provides a basic minimum
for the worker, even if the output is lower than expected.
example, a worker has an agreement under Regulation 14(1), estimating
the hours he is likely to work as 20 hours/week. Since he normally
works on 4 days each week, his estimated daily average is 5 hours.
The ascertained hours in the (weekly) pay reference period will
therefore be 20 hours. If the worker in fact does 24 hours work,
he will only be paid at least the NMW level for 20 hours. But
if he has produced extra widgets during the extra 4 hours he must
be paid at the agreed piece rate for the pieces he produces during
those hours. By contrast, if he does only 12 hours work, he will
be paid only for those hours.
effect of this arrangement is to provide certainty and protection
to both the worker and the employer. It provides the employer
with certainty as to what number of hours worked will be claimed
by the worker. It provides the worker with a guaranteed basic
income up to an agreed number of hours per week.
work" (Regulations 16-18)
difficulty of applying an hourly rate in the case of "non-hours
work" is similar to that faced in respect of "output work". In
order for the NMW to be applied to workers doing non-hours work,
such as pub managers living on-site, wardens of youth hostels,
and workers living on summer camp sites, the Regulations need
to provide a means of arriving at the number of hours worked by
them for NMW purposes.
of Regulations 16-18
The approach adopted by Regulations 16-18 is similar to
that adopted by Regulations 13-15. As for output work,
the Regulations provide two alternative ways of determining the
number of hours of non-hours work done by a worker in the reference
period for NMW purposes:
16 defines the hours of non-hours work worked in the pay
reference period as the total number of hours spent by the worker
in carrying out his contracted duties. Regulation 16
applies unless the condition of Regulation 17(1) is met.
17(1) sets out the condition that must be met in order for
an alternative method of calculating hours of non-hours work
to be used. There must be a prior written agreement between
the worker and employer, setting out the average number of hours
the worker is likely to spend on carrying out his contractual
duties on a normal working day. Regulation 18 provides
that in this case, the number of hours agreed in writing is
treated as the total number of hours of non-hours work worked
in the pay reference period.
16 establishes a "default" mechanism that will apply unless
there is an agreement in accordance with Regulation 17(1).
It is a simple and straightforward approach which in effect treats
the "non-hours" worker in the same way as a time worker. The actual
hours worked by the worker will be the total hours spent by him
in the pay reference period in carrying out his contractual duties.
17 provides for an alternative arrangement where it is inconvenient
for the worker and employer to record or ascertain the hours the
worker has spent carrying out his contractual duties. Regulation
17(1) provides that the worker and employer must enter into
an agreement in advance stating the average number of hours of
non-hours work which the worker is likely to do on a normal working
day. Under Regulation 17(2) this average must be capable
of being shown to be "realistic" by the employer (to prevent an
unrealistically low estimate of "guaranteed-NMW" hours).
17(3) provides that an agreement on average hours does not
vary the worker's contract.
18 provides a means for determining what hours count as "ascertained
hours" worked by non-hours workers. The effect of Regulation
18(2) is to treat the number of hours worked by a non-hours
worker as being the hours specified in the written agreement,
for a normal working day. Where the worker works for part of the
day (eg takes half a day's holiday), then the hours for that day
are reduced proportionately.
ON CHAPTER SIX (Regulations 12-18)
[See also the Questionnaire]
you clear under which of the categories (time work; output
work; non-hours work) you or your workers fall for NMW
purposes? If not, please explain the circumstances.
work and non-hours work
you agree with the approach adopted for output work and
non-hours work? If not, please explain why.
you do output work or non-hours work or employ workers
who do, will you wish to use either the "default" options
at Regulation 13 or 16; or the "written agreement" options
at Regulation 14 or 17. If the answer is "No" to either
of the above, please explain why not.
the methods of ensuring that output workers and non-hours
workers receive at least the level of the NMW for eligible
hours appear to you to be clear and fair? If not, can
you suggest any viable alternative?
you have any other comments on Regulations 12-18 covered
in Chapter 6?