Salaried hours work and the National Minimum Wage

For a salaried worker, minimum wage compliance is tested against the “basic hours” in the contract for a year, spread evenly over each pay reference period, not against the hours actually worked each month. That protects employers when hours vary, but once a worker has worked all their basic hours for the year, every further unpaid hour is added to the calculation, and a salary that looked comfortably above the minimum can fall below it.

What is salaried hours work?

Regulation 21 of the National Minimum Wage Regulations 2015 sets four conditions, all of which must be met:

1. the worker is entitled under the contract to an annual salary, alone or with a performance bonus, a salary premium or both;
2. the salary is paid for a number of hours in a year that are specified in, or can be worked out from, the contract (the basic hours);
3. the worker is entitled to no other payment for those basic hours; and
4. the salary is paid in equal instalments no more often than weekly and no less often than monthly, or in monthly instalments that vary but give an equal amount each quarter, whatever hours are worked in the period.

Since 6 April 2020, fortnightly and 4 weekly salaries qualify, and salary premiums are allowed. A salary premium is extra pay for working at a particular time, on a particular day, in a particular place or on a particular task, such as nights or London weighting. It does not count towards minimum wage pay. Instalments may vary without breaking the rules when a bonus or premium is paid, the salary changes, extra hours are paid for, or someone starts or leaves part way through a period.

Term time workers paid the same amount all year, such as school cleaners and caretakers, are salaried hours workers. HMRC tests for salaried hours work first, then time work, then output or unmeasured work. A worker can be doing salaried hours work for basic hours and time work for separately paid overtime under the same contract.

How are basic hours set?

The contract should state the hours the salary covers, for example 1,950 hours a year. GOV.UK guidance accepts a weekly or monthly figure if the annual total can be worked out precisely. A weekly figure can be multiplied by 52, 52.14, 52.18 or another formula, but the employer must be able to show how the annual figure was arrived at. Under regulation 22(5) the basic hours are those in the contract on the first day of the pay reference period. If the hours change part way through the year, regulation 25 apportions the old and new figures by days.

How are hours per pay reference period worked out?

Regulation 22 divides the basic hours by 52 for weekly pay, 26 for fortnightly, 13 for 4 weekly and 12 for monthly. For any other period it divides by 365 over the number of days in the period. The result is the notional hours to be paid at the minimum wage in every period, whether the worker actually worked more or less that month. Minimum wage pay for the period is then divided by those notional hours.

Some absences reduce the hours. Paid holidays, rest breaks, and sick or family leave on full normal pay count as hours worked. Hours of absence paid at less than normal pay, such as half pay sick leave or Statutory Sick Pay only, are deducted, along with the pay for them, as are unpaid leave and industrial action.

Hours that count include time at work and required to be there, standby or on call at or near the workplace (not at home), time kept at work unable to work, business travel and required training. Commuting does not count.

Why can extra unpaid hours take a salary below the minimum?

The averaging works only up to the basic hours. Under regulation 26, the employer must track whether the hours worked, plus absences that form part of the basic hours, plus any unpaid extra hours, exceed the basic hours in the calculation year. Once they do, regulation 28 changes the sum:

• In the pay reference period where the basic hours run out, the hours to be paid are the basic hours apportioned by days to the whole period, plus the actual hours worked from the day the limit was passed.
• In each later period of the calculation year, the hours to be paid are the normal share of basic hours plus every hour actually worked.

In other words, the salary keeps paying for notional basic hours, and the extra hours must be paid on top at no less than the minimum wage. GOV.UK guidance says that if an employer pays for the extra hours as they occur, no further calculation is needed.

What does that look like in numbers?

Illustration only. A worker aged 25 has a salary of £26,500 for 2,080 basic hours (40 hours a week × 52), paid monthly at £2,208.33. The notional hours each month are 2,080 ÷ 12 = 173.33, so the hourly rate is about £12.74, just above the £12.71 National Living Wage for 2026 to 2027.

The worker regularly stays late without extra pay and reaches 2,080 hours, counting paid holidays, at the end of month 11 of the calculation year. In month 12 they work 190 hours.

1. Hours to be paid in month 12: 173.33 notional plus 190 actual = 363.33.
2. Minimum pay required: 363.33 × £12.71 = £4,617.92.
3. Salary paid: £2,208.33, so the shortfall for that month is £2,409.59.

The salary was compliant in every month before. The underpayment arises entirely because the unpaid extra hours exhausted the basic hours before the year ended.

What is the calculation year?

The calculation year usually runs from the worker’s start date. For monthly paid workers who start part way through a month, it runs from the start date to the end of the same month a year later, then month to month. An employer may move a worker to a common calculation year by written notice of at least 3 months explaining the effect, provided the worker does not object in writing before the new year starts, the year has not been changed in the previous 6 years, and no deductions, payments or extra hours result. The notice period and objection rules do not apply to a worker employed for less than 3 months.

What happens when the worker leaves?

Regulation 29 adds a catch up in the final pay reference period. If the worker has not exceeded the basic hours, the final period includes any hours worked in the year so far that exceed the notional hours paid so far. A worker who front loads long hours and leaves early is therefore owed pay for them. If the basic hours have already been exceeded, the final period also includes the notional hours for the rest of the calculation year. The same rule applies if the contract is varied so it is no longer for salaried hours work.

What mistakes do employers make?

• Not stating basic hours anywhere, so the work may fall to be treated as time work.
• Recording no actual hours, leaving no way to see when basic hours run out.
• Setting salaries close to the minimum while expecting unpaid overtime.
• Forgetting that a salary premium does not count as minimum wage pay.
• Ignoring salary sacrifice or accommodation charges, which reduce pay for the test.

Arrears are calculated at current rates where those are higher, and HMRC can charge a penalty of up to 200% of the arrears, capped at £20,000 per worker. Records must be kept for 6 years. For the wider rules see National Minimum Wage rules for employers, and for what to expect if HMRC visits, the employer compliance check guide.

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Related Accountapedia entries

• HMRC National Minimum Wage investigations
• National Minimum Wage rules for employers
• Salary sacrifice and the National Minimum Wage
• The NMW accommodation offset
• Uniform and expense deductions that breach the minimum wage

Sources

• legislation.gov.uk: SI 2015/621, regulation 21
• legislation.gov.uk: SI 2015/621, regulation 22
• legislation.gov.uk: SI 2015/621, regulation 25
• legislation.gov.uk: SI 2015/621, regulation 26
• legislation.gov.uk: SI 2015/621, regulation 28
• legislation.gov.uk: SI 2015/621, regulation 29
• GOV.UK: Working hours for which the minimum wage must be paid
• GOV.UK: National minimum wage rates
• GOV.UK: Enforcing the minimum wage

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.