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NMWM09090 | Pay reference periods and elements of pay: what is an allowance for National Minimum Wage purposes?

From HM Revenue & Customs · National Minimum Wage Manual

Relevant legislation

The legislation that applies to this page is as follows:

  • National Minimum Wage Regulations 2015, regulation 10(k)

Deciding the true nature of payments

Employers and workers describe allowances in various ways. However, it is important not to accept a label given to a payment from an employer to a worker at face value. For example, a payment termed an “attendance bonus” may in fact be an allowance for National Minimum Wage purposes.

Similarly, payments designed to refund employment expenses can sometimes be termed “allowances”, for example a “petrol allowance”. However, these may not be allowances for National Minimum Wage purposes, as they may be an expense in connection with the employment (NMWM09170).

What is an allowance for National Minimum Wage pay purposes?

An allowance for the purposes of National Minimum Wage pay is:

  • attributable to a particular aspect of a worker’s working arrangements, or

  • attributable to his working or personal circumstances

and

  • not consolidated into standard pay

This definition specifically excludes an allowance designed to refund expenses (see NMWM09170).

“Attributable to a particular aspect of a worker’s working arrangements” means the payment generally relates to a specific aspect of the work itself such as an allowance paid as an attendance allowance, punctuality allowance, on-call allowance, unsocial working time allowance, shift allowance, key holder allowance, etc

”Attributable to his working or personal circumstances” means the payment generally relates to the worker’s circumstances, rather than being specifically related to the work being performed. This might include an allowance connected with desirable qualifications (such as NVQ assessor, first aider, health and safety, typing, etc.), a training allowance to undergo further study, an allowance in respect of relocation, an allowance for living in a certain area (such as London weighting).

”Not consolidated into standard pay”

There is no definition to determine when an allowance is consolidated into standard pay. A view has to be taken as to whether the allowance is amalgamated into the overall pay arrangement. Indications that an allowance is consolidated into standard pay can include (but is not restricted to) circumstances when the allowance is:

  • treated in line with the overall pay package, such as being treated the same with regard to annual pay increases or decreases, and/or

  • included in pensionable pay, and/or

  • included when calculating any overtime rate.

For guidance on how the payment of an allowance affects National Minimum Wage pay see (NMWM09100)