The Irish government introduced a National Minimum Wage (NMW) in April 2000 as part of a policy to tackle exclusion, marginalisation, and poverty. The NMW is the lowest average hourly rate that employers are permitted to pay employees.
Following on from a recommendation from the Low Pay Commission, the rate for an experienced adult worker increases to €10.20 per hour from January 1st, 2021. This employment law guide outlines your obligation as an employer to pay employees a minimum hourly rate and highlights some common pitfalls to avoid.
Exceptions to the requirement to pay NMW
First of all, you need to confirm that the statutory duty to pay the NMW applies to the particular employment you offer.
While all employees including full-time, part-time, temporary or casual employees are entitled to be paid NMW, you will not be obliged to pay the NMW to:
- Persons who are close relatives of the employer, in other words, a spouse, civil partner, father, mother, grandfather, grandmother, step-father, step-mother, son, daughter, stepson, stepdaughter, grandson, granddaughter, brother, sister, half-brother or half-sister of the employer.
- Persons taking part in statutory apprenticeships.
- Persons engaged in non-commercial activity or work carried out under the supervision of the governor or person in charge of a prison (a relatively niche employer!).
Next, you should confirm if the work you offer falls into the categories of employment which are subject to the prescribed sub-minima rates. Since the Employment (Miscellaneous Provisions) Act 2018 came into force on March 4th, 2019, these rates apply to:
- Persons under 18 years of age: 70%
- Persons who are 18 years of age: 80%
- Persons who are 19 years of age: 90%
Board and lodgings
Board and lodgings refer to food and accommodation provided by employers to employees as part of the employment relationship.
You are entitled to include the following maximum board and lodging rates in calculating the NMW 9since January 1st, 2021):
- For board: €0.91 per hour worked (calculation at hourly rate)
- For lodgings only: €24.10 per week or €3.45 per day
The following table outlines the NMW rate and sub-minima rates:
Minimum hourly rate of pay
% of minimum wage
Experienced adult worker
Worker aged under 18
Worker aged 18
Worker aged 19
How do I calculate the hourly rate?
Once you have confirmed whether or not your employees fall into any of the exempt or sub-minima categories and whether board and lodgings should be included, you are ready to calculate the minimum gross pay your employees are entitled to. The basic method of calculation is to divide the gross pay by the total number of hours worked. Sounds easy but there are two principal pitfalls to avoid when calculating the NMW.
Pitfall no. 1 – excluding certain payments
There are a number of items that need to be excluded from the calculation of the NMW. These items are:
- Overtime premium
- Call-out premium
- Service pay
- Unsocial hours premium
- Tips which are placed in a central fund and paid out as part of the employee’s wages
- Premiums for working public holidays, Saturdays or Sundays
- Allowances for special or additional duties
- On-call or standby allowances
- Certain payments in relation to absences from work, for example, sick pay, holiday pay or pay during health & safety leave
- Payment connected with leaving the employment including retirement contributions paid by into any occupational pension scheme available to the employee
- Redundancy payments
- An advance payment of, for example, salary: the amount involved will be taken into account for the period in which it would normally have been paid
- Payment in kind or benefit in kind, other than board and/or lodgings
- Payment not connected with the person's employment
- Compensation for injury or loss of tools
- Awards as part of a staff suggestion scheme
- Loans given to employees
So what does count as pay for the purposes of NMW?
For the purposes of NMW, gross wages include the basic salary and any, piece rate, commission, shift premium, the monetary value of board and lodgings (see above) bonuses or service charges.
Pitfall no. 2 – determining the correct working hours
To establish the average hourly rate of pay you must determine the hours of work being completed by your employees. Your employees’ working hours for the purposes of calculating NMW are whichever is the greater of the following:
- The hours set out in any document such as a contract of employment, collective agreement or statement of terms of employment provided under the Terms of Employment (Information) Act 1994, or
- The actual hours worked by the employee or hours the employee was available for work and paid accordingly.
Working hours include:
- Travel time where this is part of the job.
- Time spent on training authorised by the employer and during normal working hours.
Working hours do not include:
- Time spent on standby other than at the workplace.
- Time on leave, lay-off, strike or after payment in lieu of notice.
- Time spent travelling to or from work.
Pay reference period
You as an employer, will select the period, known as the pay reference period, from which the average hourly pay will be calculated. This is at your discretion and can be on a weekly or fortnightly basis, but cannot be for a period longer than a month.
You must also include details of the pay reference period in the statement of employment conditions to be given to an employee under the Terms of Employment (Information) Act 1994.
Exemption to pay in cases of financial difficulty
If you are not in a position to pay the NMW due to financial difficulty, the Labour Court may exempt you from paying the NMW rate for between three months and one year. You may only avail of this exemption once.
If you are experiencing financial difficulty, you must seek the consent of a majority of your employees to the proposed reduction in wages and apply to the Labour Court for the exemption. Your employees must also agree to be bound by the Labour Court decision.
You must demonstrate that your business is unable to pay the national minimum wage and that, if compelled to do so, would have to lay-off employees or terminate their employment.
An exemption may only be sought from paying the full rate of the national minimum wage, not for cases covered by the reduced rate, for example, employees who are under 18 years of age.
I pay an employee a piece rate based on his output? How do I calculate his rate of pay?
NMW is expressed as an hourly rate of pay rather than a piece or productivity rate. In this scenario, you must ensure that your employee's pay when divided by the employee's hours of work is no less than the statutory minimum hourly rate of €10.20 per hour, as of January 1st, 2021, even in circumstances where the employee’s productivity falls below this rate.
I pay employees a premium for working on Saturday. Is this reckonable pay for the purposes of calculating NMW?
A Saturday premium should not be included in the employee’s gross pay for the purposes of calculating NMW. You will be required to deduct the Saturday premium from the gross pay and divide that figure by the hours worked to determine the employee’s average hourly rate of pay
If I cannot afford to pay employees the increased NMW, is it lawful to reduce their hours?
Reducing the hours of employees who are entitled to receive a new NMW rate of pay attracts the risk of a victimisation claim. Any decision you make to reduce an employee’s hours must have a reasonable basis and be a proportionate measure to meet a legitimate business aim. If you reduce an employee’s hours simply to ensure your payroll remains in line with the existing NMW rate, your employees may be entitled to launch a claim against you.
I engage interns as part of my employment set up. Are they entitled to be paid NMW?
The decision as to whether or not interns should be paid will depend largely on the nature of the activity being carried out by the intern. If the interns are engaged on an educative basis, for short periods and their principal activity is to shadow certain employees in your business, the obligation to pay NMW is less likely to arise. If the employment practice was examined by the Workplace Relations Commission, the reality of the day-to-day activity of the intern would be the most persuasive indicator.
If the reality of the situation is that the interns are doing work that is of value to the business and are being supervised in the same way as paid employees, the interns are likely to be in a position to assert that they are entitled to be paid the NMW.
Need our help?
For further advice on the National Minimum Wage from an expert, our advisors are ready to take your call any time day or night on 1890 252 923.