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Property Handbook

Updated 15/11/07

The National Minimum Wage Act 1998 (NMW) came into effect on 1 April 1999. It requires all employers to pay their employees at least the minimum rate set by the Government. It is therefore now illegal to employ anyone on any kind of contract of service where the hourly rate of pay amounts to less than the current NMW.

Eligibility

The NMW applies not only to those traditionally thought of as employees, but to anyone who works for someone else in a personal capacity and is paid, whether or not they have a written contract of employment. This includes agency and casual workers, people who work from home, and even “freelancers” if in practice they work for only one organisation. However, certain categories of worker are exempt, including: those aged under 18, apprentices aged 18, ministers, and in most cases, volunteers. Volunteers are only exempt on condition that they receive no payment other than reasonable out of pocket expenses, reasonable benefits in kind (such as subsistence, accommodation or training), or reasonable living expenses where one charity sends a volunteer to work away with another charity. Churches should be careful, therefore, when paying voluntary helpers that they are not paid beyond that.

It should be noted that a “contract of service” is one where the employee undertakes to work in exchange for a salary or wage. A “contract for services”, which is not covered by the minimum wage regulations, is one where a person undertakes to do a task for a fixed sum of money, eg mow a lawn or lead worship at a church service.

The NMW does not apply to anyone who is genuinely self-employed.

Current Rates

• Standard Rate for workers aged 22+, £5.35 per hour from 1 October 2006 (expected to rise to £5.52 from 1 October 2007)

• Development Rate for workers aged 18-21 and for workers aged 21-26 during the first 6 months of employment whilst on an accredited training scheme under Schedule 2(a) of the Further and Higher Education Act 1992, £4.45 per hour from 1 October 2006 (expected to rise to £4.60 from 1 October 2007)

• Young Workers Rate for workers aged 16-17, £3.30 per hour from 1 October 2006 (expected to rise to £3.40 from 1 October 2007)

Gross Pay

What counts towards gross pay in the calculation of the NMW?

• all contracted hours worked

• bonus payments or retainer fees

• setting-up time and clearing-away time (calculating a realistic daily average agreed with the employee)

• travel time to and from accredited training (ie, training required by the employer because it enables the worker to do the job, not training desired by the employee to enhance skills or career) from the place of work during normal working hours

• time spent training during normal working hours.

• accommodation (but only to a very limited extent, see below)

For output (piece or commission) workers and those employed to complete tasks regardless of time taken, there are two possible methods: either records are kept to show how many hours are actually worked in the pay period (usually a month), or the employer and employee agree a reasonable estimate of average hours likely to be worked.

The following do not count towards gross pay in the calculation of the NMW.

• holiday pay

• rest breaks and stand-by time

• sickness absence

• geographic weighting (eg, for London workers)

• allowances for working in dangerous or unpleasant conditions

• overtime payments

• benefits in kind, meals, cars, pensions

• deductions for equipment

• reimbursement of business travel expenses

• travel to and from accredited training, from home, outside normal working hours

• time spent training, outside normal working hours

Accommodation

This may be represented as formula in the following way:

Accommodation = days when accommodation is provided x £3.90 (rising to £4.30 from 1 October 2007)

For example: if a caretaker was provided with accommodation for the whole week, that would be 7 x £3.90 = £27.30 (rising to £30.10 from 1 October 2007).

Churches should be aware that this may cause problems for cleaners and caretakers in tied accommodation. It is likely that the real value of rent-free housing is much higher than the maximum allowed, and that the church will not wish to pay the NMW on top of that. There are three possible solutions that may be taken.

• Electronically-operated locks may be installed, giving access to electronic key-carriers only to specific areas at programmed times,cleaning services being engaged through a firm of contractors. This option is quite expensive initially, and is probably only really practical for large churches.

• Parallel cleaning/caretaking and tenancy contracts may be drawn up, so that the accommodation is no longer related to the employment. Our legal advice is that a court may view this arrangement as an illegitimate scheme to circumvent the NMW Act. The strongest case could be made if the worker's spouse was also party to the tenancy, and rent and wages of different amounts were exchanged without netting off. There is some cost in drawing up contracts.

• The worker's house could be sold or let, and the proceeds used to fund an appropriate wage to a worker, living elsewhere.

Selling and letting are, of course, subject to Synod approval. Churches are advised to consult their District Finance & Property Committee for advice if they wish to proceed down this line.

Please note: It is illegal to dismiss a worker because of the NMW or to contract out of it.

Pay Reference Period

An averaging period has to be set to calculate NMW and it is called a pay reference period (PRP) which can be a week, a fortnight or four weeks, but cannot exceed one calendar month.

To calculate the worker's wage, employers must add up all the items which may be counted towards gross pay in a PRP and divide by the number of hours actually worked. This will give the hourly rate. If it is less than the NMW rate, it will have to be raised to at least the NMW rate.

Term Payments and Retainer Fees

What is the impact on workers who, though paid termly, receive 12 or 52 payments per year?

• Some workers have been paid this way to avoid NIC thresholds during a year. However this method could reduce the rate of pay per hour and the employees could therefore fall below the NMW. This would have to be brought into line.

Can a summer retainer fee be split over 12 months or 52 weeks?

• No. If the PRP is one month,11/12ths of a retainer must be allocated to the PRP in which it is going to be paid and only 1/12th can be allocated to the previous PRP. Likewise if the PRP is one week, 51/52nds of a retainer must be allocated to the PRP in which it is going to be paid and only 1/52nd can be allocated to the previous PRP.

If a retainer is paid as a “lump sum”, will the employer or the employee have to pay NICs?

• Possibly yes, if the total gross pay within the PRP rises above the NIC threshold.

NMW Administration

There are no additional requirements for administration beyond those already in place for provision of itemised pay statements under the Employment Rights Act 1996. Itemised records of employees contracted and worked hours and payments made should be kept carefully, for at least 3 years. For those workers near the minimum level, more detailed records should be kept, with a clear trail to bank statements and other proof of payment. The burden of proof that the NMW has been paid falls to the employer.

All employees must have access to their records within 14 days of a request if they have a reasonable query.

Workers are also entitled to be given general information on the NMW, rates, exemptions and rights to access records within 14 days if they suspect underpayment. Task-workers should also be told the number of hours recorded and the amount of total payments towards the NMW.

An example of a detailed record might run something like this:

Employee Name: John Smith

PRP Ending: 31 August 2007

Basic Pay: £100.00

+ Extras (detailed, including accommodation): £ 25.50

- Deductions (detailed): £ 15.00

- Payments not counted for NMW purposes (detailed): £ 16.00

- Deductions or payments for accommodation (detailed):£ 5.40

= Total pay for NMW purposes: £ 94.10

Hours worked (including travel during working hours): 20h

- Absences 2h

= Total hours for NMW purposes: 18h

Actual hourly wage rate for NMW purposes: £ 5.23

Compare applicable hourly NMW rate: £ 5.35

Questions and Answers

Can an employee opt not to receive the NMW if it means an employer can afford to keep them on?

• No. The NMW is a statutory right that cannot be waived.

What will happen if an employer does not pay the NMW?

• Employers who do not comply with the law face penalties to the enforcement agency for non-compliance; compensation to employees and additional fines up to a maximum of £5,000 to the courts for committing a criminal offence, unless they can show that they exercised all due diligence.

What will happen if an employer does not keep proper records?

• There is an automatic fine of 80 times the hourly minimum wage.

Are retired people and pensioners eligible for the NMW?

• Yes, they have a statutory right to receive at least the NMW.

Are there be any regional differences?

• No, the rates apply across the UK.

Can churches pay honoraria to volunteers?

• Yes, a genuine gift with no obligation will not give rise to a right to receive the NMW, but beware that regular payments (eg, a standard weekly or monthly sum) may raise the presumption that the volunteer is a worker for the purposes of the NMW legislation.

Caretakers’ Accommodation

A “service occupancy” does not create a tenancy giving the occupier any security of tenure provided that the following requirements are met:

• The employee occupies the premises belonging to the church in order to perform his/her services.

• The occupation by the employee of the premises is necessary for the performance of his/her duties either immediately or at some time in the future.

Normally the grant of a licence/tenancy of premises with exclusive possession creates a tenancy but provided that it can be shown that the agreement is a service occupancy as defined above, the arrangement will remain a licence because the exclusive possession is referable to the employment relations between the employer and the employee.

Where an employee is given exclusive possession of premises that he/she does not need to occupy either at that time or in the future for the better carrying out of his/her duties, then a tenancy may arise. Any such arrangement entered into on or after 15 February 1997 would give rise to an assured shorthold tenancy which the church would be entitled to terminate upon giving not less than two months notice before the end of the contractual term.

Whether or not the occupation of the premises is necessary for the performance of the employee’s duties is a question of fact in each case. Generally, where the premises occupied by the employee are in the vicinity of the church premises where he/she is to carry out his/her duties then it is likely that the occupation of the premises would be for the better performance of his/her duties.

The model form of service occupancy agreement used by the Southern Synod provides that any such arrangements between the church and the employee are licence arrangements, which may be terminated upon the occurrence of any of the following:

• If the employee ceases to reside in the premises, or

• upon not less than four weeks notice in writing by either party to the other, or

• upon the expiration of not less than four weeks notice in writing from the church to the employee if he/she is in breach of any of the terms of the service occupancy agreement, or

• if the church gives written notice to the employee determining his/her employment in accordance with the employment conditions annexed to the service occupancy licence.

• Please note that whether or not the church can validly terminate the occupier’s employment is a question of employment law to be considered in the circumstances of each particular case.

Useful Contacts

The DTI, The National Minimum Wage,

Freepost SE 2693, London SE5 7YU

Telephone: 0845 600 0678 (Enquiries)

NMW Enquiries, Freepost PHQ1, Newcastle-upon-Tyne NE98 1ZH

The DTI NMW Website at

www.dti.gov.uk/employment/pay/national-minimum-wage/index.html

Tailored Interactive Guidance on Employment Rights website, now accessed by clicking on the Tiger at

www.direct.gov.uk/en/Employment/Employees/index.htm

Tailored Interactive Guidance on Employment Rights website at www.tiger.gov.uk

The Revenue & Customs website at www.hmrc.gov.uk/nmw/index.htm

A Detailed Guide to the NMW – printed by the DTI - 0845 845 0360 (Orderline)

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