Please note that this article is intended for educational purposes only and should not be deemed to be or used as legal, employment or tax advice. For guidance or advice specific to your business, consult with a qualified professional.
The National Minimum Wage (NMW) is a set of wage rates that every employed adult in the UK can expect to be paid when working. Different rates apply to different workers, but every employer must pay no less than the hourly rate for each demographic. The National Living Wage is a higher hourly rate that is now paid to all employed workers aged 23 or over.
What is the national minimum wage?
The UK National Minimum Wage is a legal requirement, so all employers must be aware of how much they need to pay each employee to ensure compliance.
The rates vary depending on the age of the employee and the type of contract they have. For example, apprentices can be paid a lower minimum wage, regardless of their age.
The rates also change slightly each year at the start of the new financial year. This has increased to the minimum hourly rate that employers must pay from the 1st of April each year.
Team management software can be used to help calculate the rate of pay each employee receives and ensure compliance with NMW regulations.
Calculating minimum wage for employees means ensuring that they are paid at least the required minimum amount for all eligible hours worked. This is regardless of whether the employee is paid by the hour or paid 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 pay received. If this figure is not equal to or greater than the required NMW for that employee, then their wages must be increased accordingly.
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 been increased steadily each year for the past 20 years at an average rate of between 20p and 30p per hour.
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 receives the minimum wage?
- Most employed adults of school-leaving age and over in the UK are entitled to receive the NMW. This includes:
- full-time workers
- part-time workers
- apprentices and trainees
- employees working a probationary period
- disabled workers
- workers from outside of the UK
- homeworkers, agricultural workers
- casual labourers
- and offshore workers temporarily located outside of the UK.
It does not apply to self-employed people or contractors.
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?
The rate of minimum wage varies, depending on the age of the employee and whether they are working an apprenticeship. The age bracket for receiving the higher NLW rate also changed in April 2021, dropping from 25 to 23. The rates change each year but as of the 1st of April 2021 stand as follows:
|Wage Band||Current Rate||Previous Rate (April 2020 to March 2021)|
|Young employee aged 16 or 17||£4.62||£4.55|
|Employee aged 18-20||£6.56||£6.45|
|Employee aged 21 or 22 (or 21-24 up to April 2021)||£8.36||£8.20|
|Employee aged 23 or over (or 25 or over up to April 2021)||£8.91||£8.72|
Penalties for failing to pay the minimum wage
Failure to pay the National Minimum Wage is a criminal offence. 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.
The maximum fine any employer found to be underpaying workers can receive is 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 100% 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 through being more experienced and better qualified.
What is the living wage?
The National Living Wage (NLW) is a higher rate of pay afforded to workers aged 23 or over. Until 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 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. It currently stands at £10.85 per hours. Employers in London are not legally required to pay this higher rate by law but can choose to do so to help hire talented employees.
What is the difference between 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 sub-section 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 £9.30 per hour across most of the UK and £10.75 per hour for London.