National Minimum/Living Wage

The national minimum wage (NMW) and national living wage is a legal right which covers almost all workers in the UK. It became law on 1 April 1999 to prevent unduly low pay and also to help create a level playing field for employers. The national minimum wage is revised each April following recommendations by the Low Pay Commission.

In this blog we provide detail for the current pay rates, minimum wage entitlements and guidelines to ensure you are paying your staff the correct amount in line with current legislation. We also outline what will happen to companies who underpay their employees.

Current National Minimum Wage

Age Group From April 2022
Workers aged 23 and over (min rate per hour) £9.50
Workers aged 21-22 (min rate per hour) £9.18
Workers aged 18-20 (min rate per hour) £6.83
Workers aged under 18 (min rate per hour)* £4.81
Apprentices under 19 (or aged 19 and over in the first year of their apprenticeship) £4.81

Rationale behind the current increase

Despite a strong recovery in pay and employment, the UK is entering a period of squeezed living standards – the extent of which the government could not have predicted at the time that they made their recommendations. This squeeze is driven by substantial increases in energy prices, which in turn have an impact on other goods, including food prices which puts huge pressure on household budgets.

Entitlement to the NMW

Most workers in the UK over school leaving age are legally entitled to be paid at least the NMW and all employers have to pay it if workers are entitled to it. It makes no difference:

  • If workers are paid weekly or monthly, by cheque, in cash or in another way;
  • If the worker is full time, part time or any other working pattern;
  • If the worker performs the work duties your own premises or elsewhere;
  • What size business you operate;
  • Where the business is based in the UK.

Workers are entitled to the NMW even if they sign a contract agreeing to be paid at a lower rate. This is regardless of whether they sign of their own free will or because their employer persuades or makes them. The contract will have no legal effect and workers must still be paid the proper rate.

What is included and not included?

Only particular elements of a worker’s pay count as national minimum wage (NMW) pay. To calculate a worker’s NMW pay:

  • take the total pay paid by the employer in the pay reference period (PRP)
  • subtract amounts that do not count as NMW pay
  • divide this amount by the total number of hours worked in the PRP

Some payments and expenses do not count towards NMW pay. These payments include loans, pension payments, redundancy payments and the premium element of overtime pay.

Expenses linked to the job, travel costs incurred when doing the job and accommodation charges above a certain limit all reduce NMW pay. However, deductions for Income Tax, National Insurance contributions and workers’ pension contributions do not reduce NMW pay.

How is the NMW enforced?

The previous enforcement regime of penalty notices has been replaced with a notification of underpayment which will include a penalty being levied on the employer for non-compliance with NMW requirements. The government increased the penalties imposed on employers that underpay their workers in breach of the minimum wage legislation from 100% to 200% of arrears owed to workers. By increasing penalties for underpayment of the minimum wage it was intended to ensure that employers should comply with the law and pay workers the money they are legally due, instead of being tempted to underpay.

The main changes are:

  • An automatic penalty of 200% of the total NMW underpayment will be payable to the Secretary of State with a minimum penalty of £100 and a maximum penalty of £20,000 per worker. There is a 50% discount given if all of the unpaid wages and 50% of the penalty are paid in full within 14 days.
  • Serious cases of non-compliance/un-cooperation may be tried in the Crown court (liable to a potential unlimited fine).
  • There is now a new method for calculating arrears according to a formula set out in the Employment Act 2008. Any arrears owed to workers will be calculated using the rate of NMW at the date of the calculation, not at the rate as it was at the date of the underpayment.
  • Compliance officers have the power to enter premises to investigate non-compliance, and to remove for a reasonable period, NMW records in order to copy them.
  • The government names employers who break minimum wage law. As well as deterring employers who would otherwise be tempted to break minimum wage law the naming scheme also helps raise awareness of minimum wage enforcement.

NMW Record-keeping: what are the legal requirements?

The employer of a worker who qualifies for the NMW shall keep sufficient records in respect of that worker to establish that they are paying a rate at least equal to the NMW.

The records shall be capable of being produced in a single document in respect of each pay reference period and the records shall be kept for a period of three years after the end of the following pay reference period to which the records apply. The records can be kept digitally on a computer.
In order to calculate whether an employer is paying a rate equal to the NMW s/he will need to keep a record of:

  • all money payments to the worker;
  • any tips, service charge etc paid through the payroll;
  • any reductions;
  • total hours worked and total hours absent from work;
  • copies of any agreement estimating hours of output work or averaging hours for unmeasured work.

Right to appeal

If you receive a notice of underpayment you have a right of appeal. You can appeal against:

  • HMRC’s decision to issue a notice of underpayment
  • any requirement imposed by the notice of underpayment

Details of how and where to appeal will be included with the notice of underpayment.

Hours for which the NMW must be paid

The hours for which the national minimum wage must be paid depends on the type of work a worker is doing. The type of work does not depend on the worker’s occupation. Instead, it depends on the basis on which they are paid.

This guide defines the four types of work – time work, salaried-hours work, output work and unmeasured work. It also explains how the rules and calculation of hours differ for each. Where this guidance refers to ‘time worker’, ‘piece worker’, ‘salaried-hours worker’ etc, it means a person who is doing that particular type of work in a pay reference period.

It is important to note that any one worker might do different types of work for the same or, more usually, different employers. In that case, the rules and calculation of hours apply differently for each type of work that the worker does.

*This document has been sourced using information from the REC, and HRMC.

Contact us for any advice on recommended rates of pay for your employees or job roles.