An employee’s rate of pay is largely a matter for negotiation and agreement with his/her employer. However, any agreement on rates of pay will be subject to a number of legal constraints.

Employers may not pay workers less than the National Minimum Wage.

The Equal Pay Act requires that men and women are paid equally for equal work.

The Part-Time Workers (Prevention of Less Favourable Treatment) Regulations 2000 provides that part-time workers should be paid the same hourly rate as their full time equivalents.

The Fixed Term Employees (Prevention of Less Favourable Treatment) Regulations 2002 require that fixed term employees receive the same overall remuneration package as comparable permanent employees

Pay is one of the key terms of the contract of employment. Employers are legally required to specify, in an employee’s terms and conditions of employment:

  • The scale or rate of remuneration or method of calculating remuneration.
  • The intervals at which remuneration is paid (weekly, monthly or other intervals).

The “pay clause” in the contract of employment should include any provision for overtime. If overtime is likely to be required, specify whether it will be compulsory or voluntary and at what rate it will be paid (for example, normal time, time and a half or more) or whether time off in lieu will be given.

Employers are also required to issue employees with an itemised pay statement at or before the time when wages are paid.

The National Minimum Wage

There are three rates of the National Minimum Wage. From 1st October 2005, they are:

  • £5.05 per hour, for those aged 22 or more
  • £4.25 per hour, for those aged 18-21 inclusive and those age 22 or more, in the first six months of their employment, who are receiving accredited training.

Apprentices who are under the age of 26 and in their first 12 months of employment are not entitled to these rates.

  • £3.00 per hour for 16 and 17 year olds (above compulsory school leaving age).

16 and 17 year old apprentices are not entitled to this rate.

Employers should keep pay records for three years. Employers without appropriate computer systems should use the Salary and Benefit Record which can be completed and kept updated for every worker. This provides an “at a glance” history of remuneration. The cost to the employer of any benefits which are provided to the worker is included in this record for tax purposes (P11D).

Itemised pay statements

Employers are required to provide employees with itemised pay statements, which show:

  • Gross pay
  • Variable deductions (such as income tax, National Insurance contributions and pension contributions) and what each deduction is for
  • Fixed deductions (such as trade union subscriptions and loan repayments) and what each deduction is for
  • Net pay.

If different parts of the employee’s pay are calculated in different ways the statement must show details of each part payment.

Deductions from wages

Employers may only make deductions from a worker’s wages if:

  • There is a clause in the worker’s contract which authorises the employer to do so or;
  • The worker has given his/her prior written agreement or;
  • The employer is required by law to make the deduction (for example, income tax and national insurance contributions).

Any other deduction of wages, which does not fall into the above three categories, will be an unlawful deduction in wages.

An employer is entitled to recover an overpayment of wages or expenses made to a worker where the overpayment is made under mistake of fact (for example, as the result of a clerical or administrative error) by making a corresponding deduction from the employee’s wages.

When an overpayment has been made to a worker, deal with the situation sensitively and without delay. Alert the worker concerned at the earliest opportunity. If the amount paid in error is large, consider allowing the worker to repay it in instalments. Confirm the amount owing to the employer in writing and ask the worker to sign an authorisation allowing you to make the necessary deductions from wages.

Where an employer has made an overpayment under a mistake of law (for example, where the employer has misinterpreted the contract of employment) this overpayment is normally irrecoverable.