Citation 1998 | Royal assent 1998 | |
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Long title An Act to make provision for and in connection with a national minimum wage; to provide for the amendment of certain enactments relating to the remuneration of persons employed in agriculture; and for connected purposes. Territorial extent England and Wales; Scotland; Northern Ireland | ||
The National Minimum Wage Act 1998 creates a minimum wage across the United Kingdom, currently £7.20 per hour for workers aged over 25, £6.95 per hour for workers aged 21 to 24 and £5.55 per hour for workers aged 18 to 20. It was a flagship policy of the Labour Party in the UK during its 1997 election campaign 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. On 1 April 2016 an amendment to the act created an obligatory National Living Wage for workers over 25, which was implemented at a significantly higher minimum wage rate of £7.20, and is expected to rise to at least £9 per hour by 2020.
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Background
No national minimum wage existed prior to 1998, although there were a variety of systems of wage controls focused on specific industries under the Trade Boards Act 1909. The Wages Councils Act 1945 and subsequent acts applied sectoral minimum wages. These were gradually dismantled, until the Trade Union Reform and Employment Rights Act 1993 abolished the 26 final wages councils that had protected around 2.5 million low paid workers.
Part of the reason for Labour's minimum wage policy was the decline of trade union 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. Labour had returned to government in 1997 after 18 years in opposition, and a minimum wage had been a party policy as long ago as 1986 under the leadership of Neil Kinnock.
The implementation of a minimum wage was opposed by the Conservative Party and supported by the Liberal Democrats.
Overview
The NMW rates are reviewed each year by the Low Pay Commission, which makes recommendations for change to the Government.
The following rates apply as of October 2016:
In his 2015 budget, George Osborne announced that from 1 April 2016, a further rate known as the "National Living Wage" ("NLW") will apply to those aged 25 or over and will be at the rate of £7.20 per hour. This was successfully introduced into legislation.
Law
The National Minimum Wage Act 1998 applies to workers (section 1(2)), that is, anyone who has a contract to do work personally, other than for a customer or a client (section 54(3)). Those working through agencies are included (section 34), so that the agencies' charges must not reduce a worker's basic entitlement. Home-workers are also included, and the Secretary of State can make order for other inclusions. The Secretary of State can also make exclusions, as has been done for au pairs and family members in a family business. Share fishermen paid by a share of profits are excluded, as are 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 that the rate of pay for hours worked should not fall below the minimum. Periods when the worker is on industrial action, travelling to and from work and absent are excluded. A worker who is required to be awake and available for work must receive the minimum rate. This does not prevent use of "zero hour contracts", where the worker is guaranteed no hours and is under no obligation to work.
Enforcement
The NMW is enforceable by HMRC (section 14), or by the worker making a contractual claim or through a "wrongful deduction" claim under Part II of the Employment Rights Act 1996. Section 18 provides for compensation. Employers must not subject their workers to dismissal or any other detriment (section 25 and section 23).
In October 2013, new rules to "name and shame" employers paying under the minimum wage were established, so that the names of most employers issued with a Notice of Underpayment are published. In 2014 the names of 25 employers were released by the Department for Business, Innovation and Skills.
Case law
Statistics
The Office for National Statistics 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. In 1996, The Conservative party's future leader, David Cameron, standing as a prospective member of parliament for Stafford, had said 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 former Mayor of London Boris Johnson, a Conservative, has supported the London living wage 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 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.
To put the pay in an annual perspective, an adult over the age of 21 working at the minimum wage for 7.5 hours a day, 5 days a week, will make £1,088.75/month and £13,065/year Gross Income. After pay-as-you-earn tax (PAYE) this becomes £997.62/month or £11,971.40/year (2015/2016).} 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 holidays.
The Trades Union Congress (TUC) has argued for the introduction of "industrial pay bodies", though critics question the practicality and efficacy of such a measure. Similar arguments have been made for regional rates, so that the minimum wage is different in different parts of the UK.