Sunday, 1 March 2009

National Minimum Wage For Directors

On 2 September 2008, we posted details of the new National Minimum Wage for employees.

One question we often get asked is; "How does this affect us as directors"?

Many are aware of recent speculation and debate as to the legality of paying ourselves, as directors, less than the NMW. This is relevant for many small business people who pay themselves a small salary only, with the balance being topped up by dividends.

This is perfectly legal, as long as the director concerned does not have a contract of cmployment. As soon as a contract of employment is signed, then the NMW must be applied.

Sounds simple, except that the decision to sign a contract will also have an impact on the director's eligibility for Working Tax Credit (WTC).
  • If you are a director with no contract of employment, you will not qualify for WTC, unless your partner works the required number of hours each week.

  • If you do have a contract of employment, and pay yourself at least NMW, for the hours you do work, then you should qualify for WTC.