Many directors of small limited companies effectively pay themselves at rates below the National Minimum Wage (NMW). This is perfectly legal as long as the director concerned does not have a contract of employment. As soon as a contract of employment is introduced and signed the NMW must be applied.

This choice, to be a contracted employee or not, also impacts upon a 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 hours worked, you should qualify for WTC.

The current rates of National Minimum Wage are published below.

The rates from 1 October 2008 are:

– adults (which means people aged 22 and over), £5.73 an hour

– workers aged 18-21, £4.77 an hour – the ‘development rate’

– young people (those older than school leaving age and younger than 18; you’re under school leaving age until the end of summer term of the school year in which you turn 16), £3.53 an hour

– Apprentices under the age of 19 are not entitled to the National Minimum Wage. Apprentices who are 19 or over and in the first 12 months of their apprenticeship are not entitled to the National Minimum Wage.