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DRAFT NATIONAL MINIMUM WAGE REGULATIONS

CONTENTS
PAGE
CHAPTERS ANNEXES
1 2 3 4 5 6 7 8 9 1 2 3 4 5

CHAPTER SIX: DETERMINING THE HOURS WORKED IN A PAY REFERENCE PERIOD  

This chapter 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 work.

The hours worked in a pay reference period

Time work (Regulation 12)

61.  The 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".

62.   Regulation 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 purposes.

63.   In 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.

64.   Please see the definitions of "time work", "output work" and "non-hours work" in Regulation 2(1).
 

"Output work" (Regulations 13 - 15)

65.  The 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 purposes.

Overview of Regulations 13-15

66.   The 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:

    - Either 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.

    - Or 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.
     

Regulation 13

67. Regulation 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.
  

Regulation 14

69.   Where 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 14(1) are:

    - there 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 hour worked.

70.   For 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.

71.   Regulation 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.
  

Regulation 15

72.   Regulation 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.

73.   The 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.

74.   For 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.

75.   The 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.
  

"Non-hours work" (Regulations 16-18)

76.   The 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.

Overview of Regulations 16-18

77.    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:

    - Regulation 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.

    - Regulation 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.
     

Regulation 16

78.   Regulation 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.
 

Regulation 17

79.   Regulation 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).

80.   Regulation 17(3) provides that an agreement on average hours does not vary the worker's contract.
 

Regulation 18

81.   Regulation 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.
  

QUESTIONS ON CHAPTER SIX (Regulations 12-18)
[See also the Questionnaire]

General

  • Are 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.

Output work and non-hours work

  • Do you agree with the approach adopted for output work and non-hours work? If not, please explain why.
  • If 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.
  • Do 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?

Other comments

  • Do you have any other comments on Regulations 12-18 covered in Chapter 6?


 

 

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Last updated 13 November 2000