National Minimum Wage for Family Members
Newsletter issue - April 08.
Every worker aged 16 or over is entitled to be paid at least the national minimum wage (NMW), although the hourly rates vary according to the person's age.
Members of the family who still live at home and work for an unincorporated business are exempt from the NMW, as are non-relatives that live and work within the home. However, if the business operates as a company this exemption does not apply, and all employees of the company must receive the NMW appropriate to their age.
There is an exemption for the directors or company secretary of a family company who do not have an explicit employment contract with that company. So if you work for your company mainly in your position as a director, you do not have to pay yourself the NMW for the hours you work. However, if you have a written employment contract with your own company you are technically a worker and an employee for the purposes of the NMW legislation, and you must pay yourself at least the NMW for all the hours you work under that contract. Therefore, if you adopt a strategy of low salary around the level of the personal allowance (£5435 for 2008/09) and high dividend to minimise NI costs, whilst still working full time, you should ensure you do not have an explicit employment contract.