Key Facts: The National Minimum wage and Living Wage
Since its introduction in April 1999, the national minimum wage has long been a divisive subject for employees and business owners alike. At the time, it was believed that up to £1.9 million people were paid less than the £3.60 per hour it advised.
Nearly 20 years later, many still continue to criticise the minimum wage, especially those in charge of small businesses. At a time of sky-high business tax and premise rents, many are already struggling to turn a profit. Add into this mix the national living wage, introduced by George Osbourne in April 2016, and confusion becomes ever-more acute.
Dealing with both the national minimum, and the living wage can often be daunting, but having a firm grasp of UK law and the legislative requirements that businesses must abide by can often help to quell any misplaced fears.
What is the National Minimum Wage?
The national minimum (NMW) is the minimum pay per hour that most workers under the age of 25 are entitled to by law. The rate at which they are paid depends on their age, and whether they are an apprentice.
Who is entitled to it?
Workers must be at least the minimum school leaving age (the last Friday in June of the school year that they turn 16) in order to be entitled to the national minimum wage. Workers are also eligible for the minimum wage if they are:
- Casual labourers
- Agency workers
- Workers and homeworkers paid by the number of items they make
- Trainees and workers on probation
- Disabled workers
- Agricultural workers
- Foreign workers
- Offshore workers
Who is not entitled to it?
The following groups of workers are not entitled to the national minimum wage:
- Those that are self-employed
- Company directors
- Members of the armed forces
- Family members of the employer of live in the employer’s home
- Workers younger than the school leaving age (usually 16)
- High and further education students on work placements (up to one year)
- Share fisherman
- People living and working within a religious community
What about work experience and internships?
Those on work experience at not entitled to the national minimum wage if they are:
- A student doing work experience as part of a higher or further education course
- Of compulsory school age
- A volunteer
- On a government or European programme
- Work shadowing
What are the current rates?
The minimum wage is paid at different rates, depending on the age of the employee involved. Rates as of April 2019 are:
- Ages 21-24: £7.70 per hour
- Ages 18-20: £6.15 per hour
- Under 18: £4.35 per hour
- Apprentice minimum: £3.90 per hour
What about Apprentice’s?
Apprentices are entitled to the minimum apprentice rate of pay if they are either:
- Aged under 19
- Aged over 19, and in the first year of their apprenticeship
How do I make employer checks?
It should be noted that as an employer, it is a criminal offence to not pay someone either the national minimum wage or the national living wage, or to fake payment records.
If you discover that you have been paying a worker below the correct minimum wage, you must rectify it and pay any arrears immediately. HM Revenue and Customs have the right to carry out checks on employers at any time, and can ask to see your payment records. They can also investigate employers if an employee makes a formal complaint to them.
If HMRC finds that an employer has not been paying the correct rates, any arrears have to be paid back immediately. There will also be a fine issued, and offenders might be named by the government.
It is your responsibility to ensure that you keep clear records that prove you pay your employees at least the minimum wage – must employers use payroll records as evidence of this. All records of payment must be kept for at least three years. If your organisation needs to automate payroll our HR software for UK companies can help with this.
What are pay reference periods?
Pay reference periods are categorised by how often your employees are paid. For example, weekly, four weekly, monthly etc. A pay reference period cannot be longer than 31 days.
By law, a worker must be paid the minimum wage, on average, for all the time they have worked during the pay reference period.
What is included in calculations?
Certain payments must be included in minimum wage calculations. These include:
- Income tax and National Insurance
- Wage advances or loans
- Repayments of wage advances or loans
- Things the worker has paid for that are voluntary – i.e., meals on the job
- Any accommodation provided by the employer above the offset rate (£7 a day, or £49 per week)
- Penalty charges for a worker’s misconduct
What is not included in calculations?
Some payments made by workers must not be included when calculating the minimum wage. These include:
- Payments that should not be included for the employer’s use or benefit – for example, if they have provided travel to work
- Items that the employee has bought for work that they not been refunded for – i.e. tools, safety equipment, uniform etc.
How do I deal with disputes?
If one of your employees raises a dispute regarding the minimum wage, they must raise it with you first. If you find that you cannot resolve the issue, they can then submit a written request to view your payment records.
If these show that you the employee any money, you must pay them the arrears promptly.
If the issue still persists, the employee can then enlist the help of ACAS in regards to making a formal complaint, and they can also register a complaint with HMRC.
What is the National Living Wage?
The national living wage refers to the minimum pay per hour that most workers aged 25 and over are entitled to by law. The rate at which they are paid is same as long as they are over 25, but can differ if they are an apprentice.
It was introduced by George Osbourne to give the lowest paid UK workers a boost in earnings, with some commentators stating at the time that it could improve wages by up to 10.8%.
Who is entitled to it?
The criteria for the minimum living wage is the same as that for the minimum wage. The only stipulation is that the employee must be aged 25 or over to qualify.
Who is not entitled to it?
The criteria for the minimum living wage is the same as that for the minimum wage. The only difference is that those under 25 years of age do not qualify for it.
What is the current rate?
The current rate for the national living wage, as of April 2019, stands at £8.21 an hour.
What about apprentices?
Apprentices aged 25 or over, who are not in the first year of their apprenticeship, are entitled to be paid the national living wage alongside all other employees.
Apprentices aged between 19 to 24, who are not in the first year of their apprenticeship, are also entitled to be paid at the national minimum rate for their age.
For more details on apprentices, please see our dedicated Employer’s Guide to Apprenticeships.