How much salary to pay, do I need to pay national min wage?

[Wanderer]

So is it a case that i'm an employee of my ltd co from HMRC's perspective? But not from a NMW point of view?

Top answer by TheFaQQer!

kingcook, I think most of us find ourselves in the situation where we are a director who is an employee, but without a formal contract of employment so NMW doesn't apply.

It's the absence of a contract of employment that is the key factor here...

[kingcook]

The Employment Rights Act 1996 defines an employee as 'an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment'. (ref.)

If you haven't got a contract of employment, then you aren't an employee.

If you aren't an employee, then NMW does not apply (ref.)

So - if you are an employee, then your company is breaking the law by not paying you NMW.

When i say "i'm an employee", i mean that i have entered my name as an employee on HMRC's website under my ltd co's PAYE for employers login.

So is it a case that i'm an employee of my ltd co from HMRC's perspective? But not from a NMW point of view?

[TheFaQQer]

I am an employee (and director) of my ltd co. My salary is £7072.

I was under the impression that NMW only needs to be adhered to if you have a written contract or employment in place.

The Employment Rights Act 1996 defines an employee as 'an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment'. (ref.)

If you haven't got a contract of employment, then you aren't an employee.

If you aren't an employee, then NMW does not apply (ref.)

So - if you are an employee, then your company is breaking the law by not paying you NMW.

[kingcook]

If you are an employee of the company, then you need to pay NMW. If you aren't, then you don't need to be paid NMW.

If you are a director, but not an employee, then you don't need to be paid NMW. If you are a director who is an employee, then you need to be paid NMW.

Directors are officers of the company. They may or may not be employees.

I am an employee (and director) of my ltd co. My salary is £7072.

I was under the impression that NMW only needs to be adhered to if you have a written contract or employment in place.

[TheFaQQer]

You've just answered the first question.

No, unless you are an employee.

Thanks, So coz am a director, I don't need to comply with national min wage?

If you are an employee of the company, then you need to pay NMW. If you aren't, then you don't need to be paid NMW.

If you are a director, but not an employee, then you don't need to be paid NMW. If you are a director who is an employee, then you need to be paid NMW.

Directors are officers of the company. They may or may not be employees.

[legal]

[QUOTE=TheFaQQer;1480321]You've just answered the first question.

No, unless you are an employee.

Thanks, So coz am a director, I don't need to comply with national min wage?

[SussexSeagull]

My observation is you must have an appetite for risk to only pay yourself that little, presumably topping up with dividends, as it doesn't sound like a 'reasonable salary' which might cause he HMRC to ask a few questions if they ever come knocking.

That said, I am not an accountant.

[TheFaQQer]

After reading all these comments, I am wondering why my accountant is advising for £12k salary per annum instead of “tax code value”?

My Accountant's view is, paying 12K will cover national minimum wage.

You've just answered the first question.

Is this necessary?

No, unless you are an employee.

Secondly, Paying no NI means I am not eligible for state benefits or sick pay etc (In case if I need to claim)?

Correct.

Hence I should pay 12K instead of tax code value.

No - you should pay at least the threshold to get the the NI stamp. If you read this thread (where you have also posted), you're better off paying £7072 so that you don't pay income tax, but reduce your corporation tax liability. Also in that thread, is a debate about whether to pay £7225 instead of the recommended £7072.

What are your views please?

You need to do some more reading.

[legal]

I am wondering why my accountant is advising for £12k salary per annum instead of “tax code value”?

My Accountant's view is, paying 12K will cover national minimum wage. Is this necessary? If yes than people who pays around £8k won’t comply with this requirement?

Secondly, Paying no NI means I am not eligible for state benefits or sick pay etc (In case if I need to claim)? Hence I should pay 12K instead of tax code value.

What are your views please?