National Minimum Wage

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Following the report of the Low Pay Commission, the NMW was established in the UK by the NMW Act 1998 and came into force in April 1999. The Act gives an entitlement to a minimum hourly rate of pay to all workers (with the exception of the genuinely self-employed, children, apprentices, members of the armed forces, voluntary workers, prisoners, and share fishermen), though there are lower rates for young workers (aged 18–21), for those on the first six months of an accredited training contract, and for juveniles (aged 16–17). The NMW is calculated by dividing the total hours worked in the ‘pay reference period’ (a period up to a maximum of one calendar month) into total pre-tax earnings received for that period. The latter include incentive payments and tips paid through the payroll but exclude cash tips direct from customers, shift and overtime premiums, unsocial-hours payments, and employment benefits (with the exception of accommodation). In 2007, the rate for the NMW was £5.35 per hour for adults, £4.45 per hour for young workers and trainees, and £3.30 per hour for 16–17-year olds. Employees can enforce their entitlement to the NMW at an Employment Tribunal, and there is also a statutory obligation on employers to ensure they pay the NMW and maintain adequate records, which is backed up by inspection by enforcement officers and the risk of criminal prosecution. Britain previously never had a statutory minimum wage, though until 1993 the wages councils were empowered to set minimum rates in a number of low-wage industries. The introduction of the NMW brought the situation in Britain in line with most other developed economies, which have had statutory minimum wages or equivalents for several decades.

Subjects: Human Resource Management.

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