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Call us on 0190 864 9895| Section::Minimum Wage |
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Essential
Essential Insurance for Contractors
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National Minimum Wage Rules What is the Act about? Very simply, the Act is to ensure that all UK employees receive a minimum income rate of £4.10 per hour (for those aged 22 and over from 1st October 2001).The Act does not cover the self employed. When was it effective from? 1st April 1999. How does this affect Contractors? As with most cases, this will depend upon the method of trading used by the Contractor:Agency/PAYE The impact here of the National Minimum Wage Act should be negligible. It is unlikely that Contractors working in IT and Engineering will be earning less than £4.10 per hour. (£4.20 from October 1, 2002)The Agency has a duty to maintain records relating to hours worked but the Working Time Regulations will have enforced pretty much the same record keeping from 1st October 1998. Umbrella Company For the majority of Umbrellas, the situation is very much the same as for Agency/PAYE. Again, it is unlikely that any Contractors will be earning less than £4.10 per hour. Record keeping should already be in place as above.There are some Umbrella providers which provide the opportunity for income to be taken as dividends by adopting a complex class structure of shares. In these cases, all the Contractors under each Umbrella are employees and will have to comply with the Minimum Wage.Owned Limited Company This aspect merits individual attention:The issue as to whether the Act applies to One Man Limited Companies (where the Contractor is a Director and a shareholder) revolves around one fundamental question: Does a Director come within the definition of an employee as defined by the Act? The Act states: 54. - (1) In this Act "employee" means an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment. The Department of Trade and Industry's own guidance notes state: It (the Act) will not apply to the genuinely self-employed, office holders, directors (unless they have an employment contract).... This would appear to imply that if a Director has no Contract of Employment, then the Act does not apply. However, a number of potential problems appear on the horizon at this point: a) Section 54. - (2) In this Act "contract of employment" means a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing. Thus, if the circumstances of trading through a limited company allows the Inland Revenue to show an implied contract of employment, then the Rules will apply. The Department of Trade and Industry has verbally told us that a Director is an employee within the meaning of the Act; the rationale being that by a process of elimination he/she is not self-employed. Whether this interpretation has any legal basis is beyond our field of expertise. However, it would appear to indicate the authorities intent. What is the likely cost to a one man limited company? Assume a 40 hour week x 52 week year x £4.20 per hour = salary (minimum wage) of £8736.00.This will result in a potential National Insurance liability of £876.87. Roughly £73 pm more than if you had taken a sufficiently low salary to incur no NI liability. What should Directors of one man limited companies do? Our advice would be to pay yourself the minimum wage based on the hours you work. Then, if any litigation occurs to suggest otherwise, you could act according to the result. If you feel that the rules should not apply to you then we strongly urge you to consult a specialist employment law practitioner.
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