National Minimum Wage Act 1998
Encyclopedia
- This article is about an Act of Parliament in the United Kingdom. For other uses, see NMWA (disambiguation)NMWA (disambiguation)The acronym NMWA may refer to:Museums* National Museum of Women in the Arts in Washington, D.C. in the U.S.* The National Museum of Western Art in Tokyo, Japan* National Museum of Wildlife Art in Jackson Hole, WyomingAct of Parliament ...
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The National Minimum Wage Act 1998 creates a minimum wage across the United Kingdom, currently £6.08 per hour for workers aged 21 years and older, £4.98 per hour for workers aged 18–20. It was a flagship policy of the Labour Party
Labour Party (UK)
The Labour Party is a centre-left democratic socialist party in the United Kingdom. It surpassed the Liberal Party in general elections during the early 1920s, forming minority governments under Ramsay MacDonald in 1924 and 1929-1931. The party was in a wartime coalition from 1940 to 1945, after...
in the UK during its 1997 election campaign
United Kingdom general election, 1997
The United Kingdom general election, 1997 was held on 1 May 1997, more than five years after the previous election on 9 April 1992, to elect 659 members to the British House of Commons. The Labour Party ended its 18 years in opposition under the leadership of Tony Blair, and won the general...
and is still pronounced today in Labour Party circulars as an outstanding gain for ‘at least 1.5 million people’. The national minimum wage (NMW) took effect on 1 April 1999.
Background
No national minimum wageMinimum wage
A minimum wage is the lowest hourly, daily or monthly remuneration that employers may legally pay to workers. Equivalently, it is the lowest wage at which workers may sell their labour. Although minimum wage laws are in effect in a great many jurisdictions, there are differences of opinion about...
existed prior to 1998, although there were a variety of systems of wage controls focused on specific industries under the Trade Boards Act 1909
Trade Boards Act 1909
The Trade Boards Act 1909 was a piece of social legislation passed in the United Kingdom in 1909. It provided for the creation of boards which could set minimum wage criteria that were legally enforceable...
. Part of the reason for Labour's minimum wage policy was the decline of trade union
Trade union
A trade union, trades union or labor union is an organization of workers that have banded together to achieve common goals such as better working conditions. The trade union, through its leadership, bargains with the employer on behalf of union members and negotiates labour contracts with...
membership over recent decades (weakening employees' bargaining power), as well as a recognition that the employees most vulnerable to low pay (especially in service industries) were rarely unionised in the first place. The implementation of a wage was opposed by the opposition Conservative Party
Conservative Party (UK)
The Conservative Party, formally the Conservative and Unionist Party, is a centre-right political party in the United Kingdom that adheres to the philosophies of conservatism and British unionism. It is the largest political party in the UK, and is currently the largest single party in the House...
and Liberal Democrats
Liberal Democrats
The Liberal Democrats are a social liberal political party in the United Kingdom which supports constitutional and electoral reform, progressive taxation, wealth taxation, human rights laws, cultural liberalism, banking reform and civil liberties .The party was formed in 1988 by a merger of the...
.
- S Webb and B Webb, Industrial DemocracyIndustrial DemocracyIndustrial Democracy is a book written by British socialist reformers Sidney Webb and Beatrice Webb, concerning the organisation of trade unions and collective bargaining...
(1898) - Liberal reformsLiberal reformsThe Liberal welfare reforms were acts of social legislation passed by the British Liberal Party after the 1906 General Election. It has been argued that this legislation shows the emergence of the modern welfare state in the UK. They shifted their outlook from a laissez-faire system to a more...
- Trade Boards Act 1909Trade Boards Act 1909The Trade Boards Act 1909 was a piece of social legislation passed in the United Kingdom in 1909. It provided for the creation of boards which could set minimum wage criteria that were legally enforceable...
- Trade Boards Act 1918Trade Boards Act 1918The Trade Boards Act 1918 was a Act of the Parliament of the United Kingdom that heavily shaped the post-World War I system of UK labour law, particularly regarding collective bargaining and the establishment of minimum wages...
- Cave Committee 1921
- Wages Councils Act 1945
- Terms and Conditions of Employment Act 1959
- Wages Councils Act 1959
- Tax Credits and Child tax creditChild tax creditA child tax credit is the name for tax credits issued in some countries that depends on the number of dependent children in a family. The credit may depend on other factors as well: typically it depends on income level. For example, in the United States, only families making less than $110K per...
, Working tax creditWorking tax creditThe Working Tax Credit is a state benefit in the United Kingdom made to people who work on a low income. It is a part of the current system of refundable tax credits introduced in April 2003 and is a means-tested social security benefit... - Wage regulationWage regulation-Minimum wage:Minimum wage regulation attempts to set an hourly, or other periodic monetary standard for pay at work. A recent example was the U.K. National Minimum Wage Act 1998...
- Fair Labor Standards Act of 1938, which introduced the minimum wage in the US
- Incomes policyIncomes policyIncomes policies in economics are economy-wide wage and price controls, most commonly instituted as a response to inflation, and usually below market level.Incomes policies have often been resorted to during wartime...
Overview
The following minimum wage amounts apply (as of 1 October 2010):- £5.93 per hour for adult workers (21+)
- £4.92 per hour for 18-to-20-year-old
- £3.64 per hour for under-18s who have finished compulsory education
- £2.60 per hour for apprentices under 19 years old
- None for those who have not yet finished compulsory education (the age when a person finishes compulsory education is either 15 or 16, depending on where their birthday falls in the school year)
A £4.51 a day deduction can be made for living accommodation. No extra benefits such as redundancy, pension payments, loans, or awards can be counted as pay. The NMW rates are reviewed each year by the Low Pay Commission and from 1 October 2011:
- the main rate for workers aged 21 and over will increase to £6.08
- the 18-20 rate will increase to £4.98
- the 16-17 rate for workers above school leaving age but under 18 will increase to £3.68
- the apprentice rate, for apprentices under 19 or 19 or over and in the first year of their apprenticeship will increase to £2.60
Law
The National Minimum Wage Act 1998 is universally applicable to ordinary workers (section 1(2)), that is, anyone who has a contract to do work, except for a consumer or a client (section 54(3)). Expressly included are those working through job agencies (section 34), so that the agencies' charges must not eat into a worker's basic entitlement. Home-workers are also included expressly, and the Secretary of StateSecretary of State (United Kingdom)
In the United Kingdom, a Secretary of State is a Cabinet Minister in charge of a Government Department ....
can make order for other inclusions. The Secretary of State can also make exclusions, as has been done for au pair
Au pair
An au pair is a domestic assistant from a foreign country working for, and living as part of, a host family. Typically, au pairs take on a share of the family's responsibility for childcare as well as some housework, and receive a small monetary allowance for personal use...
s and family members in family business. Excluded by the Act are fishermen
Fisherman
A fisherman or fisher is someone who captures fish and other animals from a body of water, or gathers shellfish. Worldwide, there are about 38 million commercial and subsistence fishermen and fish farmers. The term can also be applied to recreational fishermen and may be used to describe both men...
paid in a share of profits, unpaid volunteers and prisoners (sections 43-45).
The hours that are used in a national minimum wage calculation are dependent upon work type as defined within the National Minimum Wage Regulations 1999. The different work types are time work, salaried hours work, output work and unmeasured work. Hours to be paid for are those worked in the "pay reference period", but where pay is not contractually referable to hours, such as pay by output, then the time actually worked must be ascertained. The principle is a very basic one: that hours worked should never as a whole be paid below the minimum. Excluded from "worked" are periods when the worker is on industrial action
Industrial action
Industrial action or job action refers collectively to any measure taken by trade unions or other organised labour meant to reduce productivity in a workplace. Quite often it is used and interpreted as a euphemism for strike, but the scope is much wider...
, time travelling to and from work and absent periods. When a worker is required to be awake and available for work, then they must also be paid, however this does not prevent so called "zero hour contract
Zero hour contract
A zero-hour contract is a recent type of contract under which an employer does not guarantee the employee a fixed number of hours per week...
s" being used. That means you are guaranteed no hours, theoretically you are under no obligation, but it is strongly in your interest to be ready to work if your employer requests.
Enforcement
The NMW is enforceable by a contractual claim or through section 13 of the Employment Rights Act 1996Employment Rights Act 1996
The Employment Rights Act 1996 is a United Kingdom Act of Parliament passed by the Conservative government to codify the existing law on individual rights in UK labour law. Previous statutes, dating from the Contracts of Employment Act 1963, included the Redundancy Payments Act 1965, the...
or if the exploited worker demands to see his employer's records and is refused. Section 18 provides for compensation to the order of 80 times the minimum wage. Employers must not subject their workers to dismissal or any other detriment (section 25 and section 23). Nevertheless employees may not wish to take the risk while employed. (Some employees might not enforce their rights even if dismissed, such as illegal immigrants, who face being sent home if they claim.) Administrative enforcement by Inspectors (section 14) provides more help. Inspectors may order compliance and payment (section 19). This may be appealed by the employer, but ongoing failure to comply entails cumulative penalties. However, the effectiveness of inspection is limited by the resources given to inspect.
Case law
- Revenue and Customs Commissioners v Annabel’s (Berkeley Square) LtdRevenue and Customs Commissioners v Annabel’s (Berkeley Square) LtdRevenue and Customs Commissioners v Annabel’s Ltd [2009] is a UK labour law case regarding the treatment of tips under the National Minimum Wage Act 1998...
[2009] EWCA Civ 361, [2009] ICR 1123 - Spackman v LMU [2007] IRLR 741, entitlement to payment of wages
Statistics
The Office for National StatisticsOffice for National Statistics
The Office for National Statistics is the executive office of the UK Statistics Authority, a non-ministerial department which reports directly to the Parliament of the United Kingdom.- Overview :...
produces information about the lower end of the earnings distribution and estimates for the number of jobs paid below the national minimum wage. The figures are based on data from the Annual Survey of Hours and Earnings.
Perspectives
The policy was opposed by the Conservative party at the time of implementation, who argued that it would create extra costs for businesses and would cause unemployment. The Conservative party's current leader, David Cameron, said at the time that the minimum wage "would send unemployment straight back up". However, in 2005 Cameron stated that "I think the minimum wage has been a success, yes. It turned out much better than many people expected, including the CBI." It is now Conservative Party policy to support the minimum wage.The current Mayor of London
Mayor of London
The Mayor of London is an elected politician who, along with the London Assembly of 25 members, is accountable for the strategic government of Greater London. Conservative Boris Johnson has held the position since 4 May 2008...
Boris Johnson
Boris Johnson
Alexander Boris de Pfeffel Johnson is a British journalist and Conservative Party politician, who has been the elected Mayor of London since 2008...
, a Conservative, has supported the London Living wage
Living wage
In public policy, a living wage is the minimum hourly income necessary for a worker to meet basic needs . These needs include shelter and other incidentals such as clothing and nutrition...
since coming to office, ensuring that all city hall employees and subcontracted workers earn at least £7.60 an hour and promoting the wage to employers across the city. In May 2009 his Greater London Authority
Greater London Authority
The Greater London Authority is the top-tier administrative body for Greater London, England. It consists of a directly elected executive Mayor of London, currently Boris Johnson, and an elected 25-member London Assembly with scrutiny powers...
Economics unit raised the London Living Wage for City Hall employees to its current rate of £7.60, £1.80 more than the then minimum wage of £5.80.
The policy is criticised for its separate tier of payment for 18 to 21 year olds, who are expected to pay tax, or pay £3,000 per year in top-up fees
Top-up fees
Tuition fees were first introduced across the entire United Kingdom in September 1998 as a means of funding tuition to undergraduate and postgraduate certificate students at universities, with students being required to pay up to £1,000 a year for tuition...
for university, and pay National Insurance
National Insurance
National Insurance in the United Kingdom was initially a contributory system of insurance against illness and unemployment, and later also provided retirement pensions and other benefits...
, yet can still be paid 96p per hour less than other adults.
To put the pay in an annual perspective, an adult over the age of 22 working at the minimum wage for 7.5 hours a day, 5 days a week, will make £942.50/month and £11,310/year Gross Income
Gross income
Gross income in United States tax law is receipts and gains from all sources less cost of goods sold. Gross income is the starting point for determining Federal and state income tax of individuals, corporations, estates and trusts, whether resident or nonresident."Except as otherwise provided" by...
. After PAYE
PAYE
Pay as you earn or PAYE refers to a system of withholding of income tax from payments to employees. Amounts withheld are treated as advance payments of income tax due. They are refundable to the extent they exceed tax as determined on tax returns. PAYE may also refer to withholding of the...
this becomes £810.63/month or £9,727.55/year (2009/2010) Full time workers are also entitled to a minimum of 5.6 weeks paid holiday per year from 1 April 2009, with pro-rata equivalent for part time workers. This includes public holiday
Public holiday
A public holiday, national holiday or legal holiday is a holiday generally established by law and is usually a non-working day during the year....
s.