National Minimum Wage and furlough
Many of our employer clients are now utilising the government’s Coronavirus Job Retention Scheme. Consequently, one of the most common questions we are being asked is: what happens to employees whose wages dip below the National Minimum Wage (NMW) following the 20% reduction to wages when on furlough?
Almost all workers and employees in the UK are entitled to a minimum hourly rate of pay. The statutory minimum varies based on age and usually increases every year. On 1 April 2020 the NMW increased to:
- £8.20 for those aged between 21-24
- £6.45 for those aged between 20-18
- £4.15 for apprentices
The National Living Wage (NLW) also increased to £8.72
Typically if an employer paid their employee less than they were entitled to under the National Minimum Wage Act 1998 in respect of the hours the employee worked, the employer would be considered to be in breach of the legislation and the employee would be able to bring a claim in the employment tribunal.
However, under the rules governing the operation of the Job Retention Scheme, during any period of furlough an employee should not be working for their employer. Individuals are only entitled to the NMW for the hours they are working.
This means that furloughed workers who are not working can be paid the lower of 80% of their salary or £2,500 even if, based on their usual working hours, this would be below the relevant NMW or NLW. An employer would therefore not be in breach of the NMW legislation if they choose not to top up the extra 20% of their employee’s wages as the employee is not considered to be working.
It is important to note that any time an employee spends training is treated as working time for the purposes of the minimum wage calculations and must be paid at the appropriate minimum wage, taking into account the increase in minimum wage rates from 1 April 2020.
Employers will need to ensure that a furlough payment provides sufficient monies to cover any training hours. Where the furlough payment is less than the appropriate minimum wage entitlement for the training hours, the employer will need to pay the additional wages to ensure that at least the appropriate NMW or NLW is paid for 100% of the training time.