Please note that this article is intended for educational purposes only and should not be deemed to be or used as legal, employment, or health & safety advice. For guidance or advice specific to your business, consult with a qualified professional.
As the cost of living fluctuates in line with inflation, employers need to ensure that the wages they pay their staff are adequate to cover the cost of living. The National Minimum Wage (NMW) is a government-mandated set of wage rates that ensure every employed adult in the UK can expect to be paid at or above a certain threshold while working.
Rates depend on the age of employees, but all employers are legally obliged to pay the hourly rate for each employee’s age group. The National Living Wage is a higher hourly rate that is now paid to all employed workers aged 23 or over.
What is the UK National Minimum Wage?
The UK National Minimum Wage is a legal requirement that ensures that every employed person makes enough to be able to cover the essential cost of living. As such, all employers must be aware of how much they need to pay each employee to ensure compliance.
Rates broadly depend on the age of the employee, as living costs are assumed to increase as employees get older and assume more financial responsibilities. Apprentices, who are learning as they work, are also subject to the National Minimum Wage, albeit at a lower rate.
Rates change at the start of each new financial year to ensure they are fit for purpose as the economy expands or contracts.
It is the employer’s responsibility to calculate the minimum wage for their employees and ensure that they are paid at least the required minimum amount for all the eligible hours they have worked. This is the case whether the employee is paid by the hour or earns a monthly salary.
To calculate whether an employee is receiving at least the minimum wage, employers need to add up all eligible hours worked for each salary period and divide that by the total amount of payments received. If this figure is not equal to or greater than the required NMW for that employee, then their wages must be increased accordingly.
Employers can leverage team management solutions to calculate the correct wage requirements for each employee based on their age and make NMW compliance easier.
What is the accommodation offset?
In addition to National Minimum Wage rates, the government announces a new accommodation offset rate every year. These are applicable whenever an employer provides an accommodation benefit to an employee. This may be provided as an employment perk or may require the employee to pay rent to their employer.
The accommodation offset is a rate set by HMRC that represents the maximum value put towards an accommodation benefit to ensure that NMW has still been paid.
When does the minimum wage increase?
In the UK, the NMW increases each year with the annual Budget. Although increases are not guaranteed, the NMW has increased steadily each year for the past 20 years. For the 2023 financial year, minimum wages rose by approximately 10% for most employees, including apprentices.
Employers must stay up to date with the various NMW levels to ensure compliance. The minimum rates of pay – as set out in each annual Budget – begin to apply from the 1st of April each year. All employers in the UK are legally required to pay workers the minimum wage, regardless of the size of the business, otherwise, they will be subject to penalties.
Who is entitled to the minimum wage?
Virtually every employed worker of school-leaving age and above is entitled to the National Minimum Wage, including
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full-time workers
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part-time workers
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apprentices and trainees
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employees working a probationary period
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disabled workers
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workers from outside of the UK
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homeworkers, agricultural workers
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casual labourers
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and offshore workers temporarily located outside of the UK
However, contractors and other self-employed parties are not subject to minimum wage.
Workers are entitled to receive the minimum wage from their age bracket from the age of 16. Once an employee reaches the age of 23, they become entitled to the National Living Wage rate.
How much is the national minimum wage in 2023?
The rate of minimum wage varies, depending on the age of the employee and whether they are working an apprenticeship.
The rates change each year but as of the 1st of April 2023 stand as follows:
| Wage Band | New Rate (April 2023- March 2024) | Previous Rate (April 2022 to March 2023) | Increase (%) |
|---|---|---|---|
| Apprentice | £5.28 | £4.81 | 9.7 |
| Young employee aged 16 or 17 | £5.28 | £4.81 | 9.7 |
| Employee aged 18-20 | £7.49 | £6.83 | 9.7 |
| Employee aged 21 or 22 | £10.18 | £9.18 | 10.9 |
| National Living Wage | £10.42 | £8.91 | 9.7 |
| Accommodation Offset | £9.10 | £8.70 | 4.6 |
##Penalties for failing to pay the minimum wage
It is a criminal offence for any employer to:
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Refuse or wilfully neglects to pay NMW
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Fail to keep or preserve NMW records
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Knowingly cause or allow false entries in NMW records
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Produce of furnish false NMW records or information
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Delay or obstruct investigations made by a NMW compliance officer
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Refuse or neglect to answer any questions, disclose information or produce documents when required to do so by a NMW compliance officer
Under Section 1 of the 1998 Act, any employer contravening NMW laws could lead to prosecution and an unlimited fine.
HMRC is the governing body responsible for ensuring all employees receive what they are entitled to. They will investigate any employer whom they believe to be underpaying workers or falsifying records.
Employers found to be underpaying workers can receive fines of up to £20,000 per employee. They can also be barred for up to 15 years from taking any position as a company director. The employer will be required to pay 200% (increased from 100% in 2016) of arrears within 14 days. There is also a fine of 50% of the total amount of underpaid wages for the reference period up to £20,000 per employee.
Apprentices and the national minimum wage
In terms of the National Minimum Wage, the NMWAR (National Minimum Wage Apprentice Rate) is payable to all apprentices in the UK aged under 19, and apprentices of any age for the first year of their apprenticeship. Older apprentices become eligible for the applicable NMW rate for their age group once they enter their second year of apprenticeship.
The lower rate of pay reflects the entry-level nature of an apprenticeship and the fact that workers are learning on the job. Many people choose apprenticeships as a way to secure higher future earnings by being more experienced and better qualified.
What is the National Living Wage?
The National Living Wage (NLW) is a higher rate of pay afforded to workers aged 23 or over. Prior to April 2021, the NLW was only a requirement for workers who have reached the age of 25. It is different to the Living Wage, which has no legal basis and is calculated each year by the Living Wage Foundation. This is a non-governmental organisation that makes living wage recommendations to employers based on the average cost of living in the UK.
London living wage
The London Living Wage is a higher rate of pay designed to reflect the additional expenses of living and working in the capital. As of April 2023, this will stand at £11.95 per hour (an increase of 90p from last year).
Employers in London are not legally required to pay this higher rate by law but can choose to do so in order to attract and hire talented employees.
What is the difference between a minimum wage and a living wage?
Three terms are used when talking about minimum remuneration for employment in the UK. These are National Minimum Wage, National Living Wage and Living Wage. The National Living Wage is a subsection of the National Minimum Wage and is not associated with the cost of living.
The Living Wage, often referred to as the Real Living Wage, is not a legal requirement for any employer. It is a calculation based on the real cost of living in the UK, published annually as a guideline for employers that want to incentivise their employees with a higher realistic minimum wage.
The current Living Wage guidelines are £10.42 per hour across most of the UK and £11.95 per hour for London.
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