Businesses are generally obliged to pay at least the national minimum wage (NMW) to their workers. Most UK workers over compulsory school age who ordinarily work in the UK are entitled to be paid the NMW. If an employer should have paid the NMW but fails to do so, HM Revenue and Customs (HMRC) can (among other things) issue a notice to pay arrears for up to six years previously, impose fines of up to £20,000 per worker, and ‘name and shame’ offenders. However, the NMW rules contain certain exclusions from the general obligation to pay the NMW, including in relation to family households and family businesses.
In or Out?
The NMW rules broadly state that ‘work’ for NMW purposes excludes work done by a worker in relation to an employer’s family household, if certain conditions are all met, i.e., the worker is a member of the employer’s family, resides in the employer’s family home, and shares the tasks and activities of the family. So, if (for example) a family member lives at home and is paid for doing household chores, those payments would be excluded for NMW purposes. Prior to 1 April 2024, there was another exclusion from the NMW broadly for non-family member workers living in their employer’s family home, where certain conditions were satisfied. However, from 1 April 2024, this exclusion is removed from the NMW rules. This change potentially benefits workers such as nannies or au pairs who live with the families they work for.
Family Businesses
For family businesses (i.e., a company, sole trader, or partnership), the NMW rules state that work does not include work done by a worker in relation to an employer’s family business if the worker is a member of the employer’s family, lives in the employer’s family home, and participates in the running of the family business. In a family company, an individual may be an office holder, an employee, or both. Company directors who assume the rights and obligations of a director are office holders, but not necessarily workers. HMRC accepts that the NMW does not apply to company directors unless they have contracts that make them ‘workers’ (see HMRC’s National Minimum Wage Manual at NMWM05140). However, if a director has an employment contract, they will be within the NMW in respect of earnings under that contract. Family members sometimes work in the family company but are not office holders. Company employees are generally workers and entitled to the NMW, regardless of whether they are family members. Even if no formal written contract exists, HMRC might contend that an implied contract applies, which could result in family members working in the company’s business needing to be paid the NMW. Family members of a sole trader or partnership may be excluded from payment of the NMW, broadly where the worker is a member of the employer’s family, lives in the employer’s family home, and participates in the running of the family business. HMRC’s guidance (at NMWM05160) confirms that work carried out by the family member in those circumstances falls outside the NMW rules.
Practical Tip
A family member director who is solely an officer of the company is not necessarily a worker for NMW purposes. However, watch out for express or implied contracts of employment.