Minimum wage, tax and tax credits help for care workers
Care workers can face some real challenges when it comes to understanding their minimum wage, tax and tax credit positions, as these can be made very complex due to the nature of care work and the travel patterns involved. Here, we give you an overview of some of the main issues and tell you where to get more help.
What is the National Minimum Wage?
The National Minimum Wage/National Living Wage (NMW/NLW) is the minimum pay per hour most workers are entitled to by law. The rate will depend on your age and if you are an apprentice. The rates usually change on 1 April each year. You can find some basic information about the minimum wage on GOV.UK.
Under the minimum wage rules, you should be paid at least the minimum wage for the hours worked in your pay period, for example, a week or a month.
How do you work out if you have been paid the minimum wage?
If you are paid on an hourly basis, whether or not you have been paid the minimum wage, your wage is worked out at the end of the week or month (or whatever your pay period is), based on the number of hours you have worked in that period. The calculation involves taking your ‘minimum wage pay’ and dividing it by the number of hours worked in that pay period. The result should be equal to or above the minimum hourly rate for your age. So, for example, if you are aged 25 or over, the answer should be £8.72 or higher.
Alan worked 25 hours last week and he earned £218. He is 28 and is eligible for the minimum wage rate of £8.72 per hour. £218 divided by 25 is £8.72, so Alan has been paid the minimum wage.
How do care workers work out the number of hours worked for minimum wage purposes?
It is fairly straightforward to work out if you have been paid the minimum wage if you work a set number of hours at one fixed location. But if your working hours are fragmented and you spend a lot of time travelling around, as is often the case for care workers, then it is more complicated.
For care workers, you still take your minimum wage pay and divide it by the numbers of hours worked in that period. But the number of hours worked in a period will generally include the time you spend working in your clients’ homes (‘contact time’) as well as the time spent travelling between your different clients during the day. The number of hours worked in a period does not include travel time between home and a place of work (including your clients’ homes) or any ‘resting’ time (more on this later).
Jo, 37, is a home care worker. A typical day for Jo looks something like this:
- 7.10am: Leave house
- 7.20am to 8.05am: First appointment, followed by 10-minute drive to:
- 8.15am to 8.45am: second appointment, followed by 10-minute drive to:
- 8.55am to 9.40am: third appointment, followed by 5-minute drive home
- 9.45am to 12.10pm: gap spent at home
- 12.10pm: leave house
- 12.15pm to 12.45pm: fourth appointment, followed by 5-minute drive to:
- 12.50pm to 13.35pm: fifth appointment, followed by 10-minute drive home
- 1.45pm to 3.50pm: gap spent at home
- 3.50pm: leave housee
- 3.55pm to 4.55pm: sixth appointment, followed by 5-minute drive to:
- 5pm to 5.45pm: seventh appointment, followed by 15-minute drive to:
- 6pm to 6.15pm: eighth appointment, followed by 10-minute drive home
- 6.25pm: arrive home
Jo’s total working hours for the day, for minimum wage purposes, are six hours (5 hours and 15 minutes client ‘contact’ time and 45 minutes travel time). Neither her home to work travel, nor time spent at home counts for minimum wage purposes (although her home to work travel should be recognised for tax purposes which means she may be entitled to tax relief on her home to work travel expenses – more on this later).
How do care workers work out pay for minimum wage purposes?
Your ‘minimum wage pay’ is the amount of pay you receive, before things like tax, National Insurance and pension contributions have been taken off, but after certain other deductions have been made – including any pay premiums you have received (for example, for weekend work) or for costs you have incurred in connection with your work that are not reimbursed by your employer (more on this below).
If you receive a payslip, the starting point for working out your minimum wage pay will generally be the ‘gross’ pay figure – it may not be actually called this, but it is basically the figure circled in red below.
As stated above, from this figure you can deduct certain costs that you have incurred that are connected with work and that are not reimbursed by your employer. This will have the effect of reducing the amount of pay you are taken to have received from your employer.
For care workers, a typical example of such costs are those of travelling between clients (but not the costs of travelling between home and work). For minimum wage purposes, we understand that where care workers are using their own cars to travel to between clients, ‘costs’ are probably limited to actual petrol expenses rather than including any contribution towards wear and tear or other vehicle related expenses. If you use your car for both work and private purposes, it can be hard to work out the specific cost of the petrol used in travelling between clients. However if you keep a mileage log as part of your records (more on this later), the appropriate percentage of work use can be identified and so therefore, can your costs.
Keith is a 40-year-old care worker, paid monthly. His working hours for minimum wage purposes in May were 110 and he received gross pay of £1,000. He travelled 200 miles in his own car during May. 125 of these miles were for travelling between his clients. If his total petrol costs during May were £40 then he will be able to work out that his specific petrol costs of travelling between clients were £25, by doing the following calculation (£40 x 125/200). As this £25 was not reimbursed to Keith by his employer, Keith can deduct £25 from £1,000 to work out his pay for minimum wage purposes, which is therefore £975.
To work out if Keith has been paid the minimum wage, we need to take his minimum wage pay and divide it by the number of hours worked in that period. £975 divided by 110 is £8.86, so Keith has been paid at least the minimum wage (his minimum hourly rate is £8.72). For completeness, if Keith’s employer had reimbursed him £10 of his £25 costs, his minimum wage pay would be £985 (i.e. £1,000 reduced by £15).
What if my employer pays me differing rates for my contact time and travel time?
It is quite common for workers to receive different pay rates for different ‘types’ of work – these all count when working out pay for minimum wage purposes.
Carrying on the example of Jo from earlier, she is paid at a rate of £9 per hour for ‘contact’ time and £2 per hour for travel time. Her total pay for the day is £52.68 (5 hours, 15 minutes at £9 per hour (£51.18) and 45 minutes at £2 per hour (£1.50)). Assuming that this is the only days’ work in her pay period, we need to take her minimum wage pay of £52.68 and divide it by six hours (her total working hours), which is £8.78. As this is more than £8.72, Jo has been paid the minimum wage.
What if I only get paid for the time spent with clients?
Many care workers do not get paid for their time or costs of travelling between clients at all. This can have knock on effects on their tax and tax credits position – see later. However, it is not unlawful for care workers to be paid only by reference to their ‘contact time’ (time spent with clients), provided their pay averages out at or above the minimum wage, once any time spent travelling between clients and associated out-of-pocket expenses are also factored in.
Alison, 27, is paid weekly at £8.90 per hour with no reimbursement of expenses. One week, her employer pays her £267 for 30 hours work (30 x £8.90). These are the hours that she spent with clients in their homes. She spent three unpaid hours that week travelling between clients and incurred petrol costs of £20 in doing so.
To work out if Alison has been paid the minimum wage, we need to take her minimum wage pay and divide it by the number of hours worked in that period. Alison’s minimum wage pay for the period is £247. This is the £267 paid by her employer less the £20 unreimbursed expenses. The number of hours that Alison has worked in her weekly pay period are 33 hours. This is the 30 hours of time she spent with clients plus 3 hours of travelling time between clients. Dividing £247 by 33 gives us an hourly rate of about £7.48 an hour. As Alison is aged 25 or over, she should have been paid at least £8.72 for each of the 33 hours she has worked (a total of £287.76) and so she has been underpaid the minimum wage by £40.76 (£287.76 less £247).
We can see from this example that care workers who are paid like this, who receive lower pay rates per hour, are at risk of being underpaid when travel time and costs are factored into the minimum wage pay calculation. It is therefore vital that you regularly check your wages against travel time and costs.
What about travel between home and work?
It is not currently a requirement under minimum wage law that care workers are paid for their travel time from home to a place of work, nor associated travel expenses. This is despite the fact that client demand may mean that you have some long breaks in your rota when there is really nothing to do except go home. Interestingly, if you were to travel to the office to sit out a break rather than going home, then the amount of time travelling to and from the office would count as ‘working time’ (although the time spent ‘resting’ there would not). There are some useful examples looking at care workers and travel time/resting time on GOV.UK.
Confusingly, home to work travel is usually recognised as being part an inherent part of a care worker’s duties for tax purposes. This means that the tax system should allow you to make a tax deduction for all your travel costs – even the home to work ones. More on this later.
What do I do if my calls are cut short or overrun?
Sometimes employers may schedule appointments that are very short or without leaving adequate time for travel in between them. Often you may feel forced to cut time off of calls in order to arrive at your next call on time or finish calls in your own time, yet will only get paid based on your rota’d time.
For minimum wage purposes, what is important is not what is written down on your rota, but what actually happens in the course of the day. It will therefore be vital that you can correctly identify your actual working hours and costs. Keeping clear, detailed, well maintained records of your contact time, travel time and costs incurred will help you do this – this can be on an excel spreadsheet perhaps or even just be written down by hand in a journal that you keep in your car – we provide an example of how you could set things out here:
Carers travel expense log by LITRG
This will not only help you in the event of a dispute as to whether you have been paid the minimum wage, but may be useful more widely – e.g. when thinking about making tax claim for your mileage – see later.
Taking the example of Jo again, she left her second appointment five minutes early to get to her next appointment on time (so that it was actually only 25 minutes long) but then spent an extra 15 minutes at her third appointment (so that she didn’t arrive home until 10am), Jo’s total working time for minimum wage purposes would be 6 hours, 15 minutes – 5 hours and 25 minutes contact time and 50 minutes travel time. The minimum amount paid to her should be the hourly rate of £8.72 for six hours, 15 minutes, i.e. £54.50. If she is still paid in accordance with what is written down on the rota, i.e. £52.68, then she has been underpaid by £1.82.
Where can I find more information on the minimum wage?
It is not possible for a short factsheet to cover all of the rules, and there may be other areas of minimum wage law that affect you – e.g. on training, uniform deductions from pay, or receiving premium rates for certain shifts. There is a comprehensive employer guide to calculating the NMW and NLW produced by the Department of Business, Energy and Industrial Strategy that you may find helpful as it covers complex topics like those mentioned above.
Although it is aimed at employers, you may find it useful too when trying to understand the rules and self-check your position. For more technical/in-depth guidance, see HMRC’s National Minimum Wage manual.
What should I do if I think I’m being underpaid?
In the first instance, you should try talking to your employer (or if you belong to one, ask your union to do this for you). Your employer needs to put right any minimum wage underpayment by paying the arrears they owe you (going back up to six years). If this doesn’t work, then you can contact the ACAS Helpline on 0300 123 1100—all calls are treated as confidential and complaints can be passed to HMRC (who enforce the minimum wage rules) by ACAS to investigate, as required. Alternatively, you can use an online form to make a complaint directly to HMRC or take your employer to an Employment Tribunal yourself (although there are strict time limits for this).
Any minimum wage arrears should be repaid to you at current rates for all the periods you were underpaid, even if these are higher than the rates that applied when the arrears arose. The way that you work out the amount you should be paid is by using the formula (underpayment/original rate) x current rate. Example – Jane, who is 38, works out that she was underpaid the minimum wage by £256, by a homecare company that she worked for during the period May to September 2017. During this time, her minimum wage rate was £7.50. However it is now £8.72. Rather than pay Jane the £256, the homecare provider must pay Jane £297.64 (i.e. £256/£7.50 multiplied by £8.72). When it comes to how the £297.64 should be taxed when it is paid to Jane, ultimately, it should be allocated back to the tax year to which it relates (2017/18) and the tax calculated on it as if it were paid in that year (meaning that if Jane’s total earnings, including the minimum wage arrears, were below the personal allowance, then no income tax would be due). Even so, the employer will very probably operate Pay As You Earn tax at the time they pay the arrears and in a way that means she will have some tax deducted, so she will need to claim a refund. Jane should contact HMRC National Insurance Contributions and Employer Office at HMRC, BX9 1AS, to arrange a refund, quoting the guidance in this PAYE manual.
⚠️ Please note that the rules are a bit different for National Insurance: it is calculated on the basis of the year the payment is made only: it is not related back to prior years. Finally, you should be aware that such arrears payments may impact any benefits or tax credits you receive, so it is vital that you tell the relevant authorities about any minimum wage arrears as soon as possible (even if they then go on to disregard the increase in income for whatever reason).
I incur costs related to travel, can I get tax relief?
For tax purposes, many care workers will be able to deduct all their travel costs from their taxable income, including those related to home to work travel. You can find more information in HMRC’s manual. As such, where you incur rail, bus, and other transport charges, to the extent they are not fully reimbursed (or reimbursed at all) by your employer they can be claimed as a tax deduction. If you use your own transport (for example, your own car), there is the statutory system of taxfree approved mileage allowances for business journeys available:
|Vehicle||Mileage in tax||Rate per mile|
|Cars and vans||Up to 10,000 miles||45p|
|Excess over 10,000 miles||25p|
If your employer pays less than these amounts, you can claim tax relief for the unused balance of the approved amount (this is known as the Mileage Allowance Relief (MAR) system).
The mileage rate covers the costs of running and maintaining the vehicle, such as fuel, oil, servicing, repairs, insurance, vehicle excise duty and MOT. The rate also covers depreciation of the vehicle. This is a bit more generous than what you are allowed to deduct to arrive at your pay for minimum wage purposes (only petrol). However, you will need to have paid some tax to get tax relief. In 2020/21, you will pay tax on your earnings over £12,500. In other words, if your income is less than £12,500 you will not be able to get any tax relief on travelling expenses.
Rose earns £12,650 in 2020/21. After the personal allowance is deducted, she will have taxable income of £150, which at 20%, means that she will pay £30 tax. She has qualifying expenses of £100 which she has paid for from her salary. Putting in a tax claim for this does not mean she will not get the £100 back from HMRC, but that she will get back the tax that she has paid on the £100. As she has paid tax at 20%, this will be £20 (20% x £100). (While she will also have paid 12% National Insurance on the £100, there is no National Insurance relief available.) If Rose’s expenses were £200, her tax claim would be restricted to £150 (because she only paid tax on £150 of her income), and her refund would therefore be restricted to £30. To get tax relief, you have to make a claim to HMRC, but it is not usually that difficult. If you do not usually have to complete a tax return, a claim can be made online or by posting HMRC a form P87. There are plenty of organisations which offer to make the claim for you, but they'll take a fee from any repayment you get. Where the amount of employment expenses exceeds £2,500 for a tax year, then the tax refund claim must be made through the completion of a more formal self-assessment tax return. For further information, including an annotated example of form P87, see our page How do I claim a refund if I have spent my own money on employment expenses?.
How does Working Tax Credit (WTC) work for care workers?
You can find some basic information about WTC on page What is working tax credit?. As a care worker, there are certain aspects of the rules that you need to consider carefully, for example:
Working tax credit is payable to claimants who work a minimum number of ‘qualifying remunerative’ hours each week (i.e. hours for which the claimant is, or expects to be, paid). The number of hours required (16, 24 or 30 as the case may be) will depend on your circumstances as set out in the guidance on our website. There is an issue for care workers here: if your employer does not pay you directly for your travel time (even if your overall remuneration at least equals the minimum wage) then those travel hours do not count as work for tax credits and your weekly remunerative hours may be insufficient to meet the minimum WTC requirement. If you are in this situation, you could try talking to your employer about making changes to your terms and conditions – for example, reducing your hourly client ‘contact’ rate but paying you for your travel time instead.
Because there are rules about how many hours you have to work to qualify for WTC, if your weekly hours of paid work change, this can affect entitlement to WTC. However, the working hours rule in tax credits depends on the hours of work you normally do per week and so, often, fluctuations of a few hours week-by-week will not make a difference as long as you normally continue to work the minimum required for your circumstances.
If things change significantly so that your normal weekly hours of paid work change, you will need to tell HMRC. Your WTC may increase if your hours increase e.g. if you start to normally work at least 30 hours a week, or your WTC may reduce or stop if you reduce your hours below one of the thresholds.
⚠️ Note that while your income, as well as your hours, may fluctuate, the disregard system provides some cushioning for tax credits purposes, meaning that your income can rise or fall by £2,500 before your credits are changed in the current tax year.
A person’s entitlement to WTC is based upon his/her level of taxable earnings – against which permitted tax deductions are taken. Permitted deductions can include travel expenses that are not reimbursed by your employer, that you are entitled to tax relief for. For example, a care worker who is paid £275 a week and incurs travelling expenses of £50 a week will have an annual income for tax credit purposes of £11,700 (£225 x 52), rather than £14,300 (£275 x 52), potentially meaning a higher tax credit award. For tax credits, employment expenses are deducted from income if they are allowable for tax, even if full effect cannot be given to them for tax purposes because the worker does not earn sufficient to incur a tax liability. However, you should be aware that tax credits can use earnings information received by HMRC from employers to set awards, which does not include unreimbursed expenses amounts. You will therefore need to provide HMRC with revised earnings figures.
What if I am on universal credit?
Universal credit (UC) will eventually replace tax credits. Unlike WTC, for UC, you do not need to work a minimum number of hours to qualify but there may be a minimum amount that you are expected to earn. This will be agreed between you and your work coach, as part of your Claimant Commitment.
If you are on UC, how much you actually get in an assessment period will be based on the total amount of earnings you receive in that assessment period. The Department for Work and Pensions (DWP) (who administer UC) will normally get information about your earnings from your employer through HMRC’s Real Time Information (RTI) system.
Payments are adjusted automatically based on the amount reported to HMRC by employers: if earnings increase in one month then UC payments should decrease and vice versa. A similar rule applies about unreimbursed expense deductions for UC as it does for tax credits (see left), however these will not be taken into account unless you tell DWP about them. The exact route that you need to take to get your expenses deducted for UC is currently unclear –we suggest you contact the UC service centre via a note in your journal as a first step.