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NMW and Directors
The national minimum wage (NMW) rates rose on 1st April 2018. Are you certain you know what pay rise you must give to employees and whether the directors should be included in those calculations?
The five NMW rates depend on each employee’s age and whether they are on an approved apprenticeship scheme. The top rate for those aged 25 and over will rise from £7.50 to £7.83, up 4.4%.
Most directors of their own companies do not have to pay themselves the NMW. This is the case where the director does not have a contract of employment with the company and is effectively paid only for their role as an office holder.
Where the director does have an employment contract with the company, they will be treated as an employee for NMW purposes and the NMW should be paid for all the hours they work.
In a company which has a number of employees, good employment practice would be to require everyone to abide by the terms and conditions set out in the employment handbook and to sign a declaration on that basis. Where the handbook sets out all the conditions, rights, responsibilities and duties of both employer and employee, the declaration will amount to an employment contract, so directors who sign it will have an employment contract.
If the company comes under scrutiny for NMW, HMRC will want to examine the calculation of pay for everyone on the payroll, including directors. The penalty for failing to pay the correct amount can be up to £20,000 per employee. The business will be included on the name and shame list of employers where the total underpayment of NMW is £100 or more, across the whole payroll.