What is the National Minimum Wage?

With the National Minimum Wage (NMW) changing yearly, it can quickly become daunting for those looking to pay a compliant salary to their employees.

To help you manage your responsibility, we’ve created this comprehensive guide, covering everything you need to know about NMW, including the recent changes and who it applies to. So, if you’re a small-to-medium-sized business (SME) looking to bring on workers at the National Minimum Wage, an employer looking to ensure your offering is compliant and correct, or a worker wanting to check you're being paid correctly – look no further we’ve got you covered.

What is National Minimum Wage?

The National Minimum Wage is a base salary created by The National Minimum Wage Act 1998 that sets out the minimum amount of hourly pay that workers are entitled to. Via the National Minimum Wage, employees’ pay is based on their age (in years) and determined by the following tiers:

• 25 years and over
• 21 to 24
• 18 to 20
• Under 18 years old
• Apprentice

Your responsibility to pay NMW applies to all employee types, including part-time workers, fixed-term workers, agency workers, homeworkers and those on zero-hour contracts.

Although, employees who are in the 25 and over tier earn slightly more, receiving the National Living Wage (NLW) as opposed to the National Minimum Wage.

You could say that the NLW is the equivalent National Minimum Wage for over 25’s.

[From 1 April 2021, the National Living Wage will apply to workers aged 23 and over.]

As an employer, it’s your legal requirement to pay staff at least the National Minimum Wage and failure to do so can result in HMRC taking you to court.

The difference between minimum wage and living wage

Ultimately, the main difference between minimum wage and living wage is the age at which employees receive it.

The National Minimum Wage starts as base pay for workers from before the age of 18, gradually increasing until they reach 25 years old (changing to 23 from April 2021).

From 25 (23 from April 2021), employees receive a final pay boost and begin earning the National Living Wage – however, from this point, there are no further statutory wage increases.

What is the current minimum wage?

Below are the current rates for the National Living Wage for over 25’s and National Minimum Wage as of April 2020.

As previously mentioned, the rates change yearly, and most notably, April 2021 will see the age limit to receive the National Living Wage drop to 23 and over.

The 2021 changes to living and minimum wage provide workers with a 2.2% increase, making the overall offering more generous than all but eight states in the US and below only a few countries in Europe.

When was the minimum wage introduced?

The Government only introduced the National Living Wage in 2016, and the National Minimum Wage came into play in 1999.

The living wage is based on a target to reach 66% of the median earnings by 2024.

However, criticism is often raised, stating the actual National Living Wage is not in line with what people actually need, instead only meeting the pre-determined target of a 66% median.

Does the UK minimum wage differ from country to country?

For those who have workers spread across the UK, you may be wondering if the National Minimum Wage differs between England, Scotland, Wales and Northern Ireland.

The good news is that the National Minimum Wage and National Living wage is the same across the entirety of the UK, making it far easier to pay a dispersed workforce.

When does the minimum wage go up?

The National Minimum Wage and National Living Wage increase every April in line with the new financial year.

However, prior to the introduction of the NLW in 2016, the NMW rates usually get updated every October.

The only exception has been October 2016 to March 2017, which saw a rise to the minimum wage without increasing the living wage.

How has the minimum wage changed over time?

The first ever UK minimum wage was introduced on 1 April 1999, transforming the UK’s labour market.

To provide you with some clarity into what you can expect from the yearly wage rises – below we’ve highlighted a few of the previous rates from when the living wage was introduced in 2016.

Here is also a table of a few rates prior to the National Living Wage introduction.

*Please note that the figures for 1999 apply to workers who are either 22+ or 18-21.

Is it a legal requirement to pay minimum wage?

Yes, it is a legal requirement in the UK to pay your employees the National Minimum Wage.

As an employer, you’re more than welcome to offer a wage far beyond the NMW/NLW, and in some cases, it’s needed to recruit top talent.

But the absolute lowest amount you can provide is either the National Minimum Wage or National Living Wage, depending on the employee’s age.

As previously touched on in the blog, it’s against the law to pay below the minimum wage, and anyone can report an employer to HMRC.

If a business is found guilty, a notice of arrears can be sent, and a fine for not paying the correct rate of pay can be issued.

The maximum fine is £20,000 per employee, and if an employer fails to pay, they can be named publicly and banned from being a company director for up to 15 years.

How IRIS can help

IRIS HR Pro can help alleviate all the difficulties associated with HR and payroll. Our cloud-based HR and payroll software can help you with compliance to ensure your managing your workforce correctly.

The payroll integration can help you combine your payroll software and the HR system for the ultimate small business cloud solution which can be used from anywhere.