Confused about the National Minimum Wage, the National Living wage rates and rises in 2017?
You are not alone. Employers and workers alike have found these terms confusing to say the least.
Firstly, the National Living Wage rate (NLW) for workers aged 25 and over, is rising to £7.50 per hour in April 2017. The other Minimum Wage Rates are also increasing, see the diagram below.
Now for the explanation of these terms.
The National Minimum wage (NMW) is what it says: the minimum pay per hour most workers are entitled to by law. Workers includes all employees and workers: part-time, flexible and agency workers and those working under apprenticeship schemes.
There are different rates for each age group, from school leavers (16yrs) upwards. The government sets these rates and reviews them yearly. The rates change in October each year.
All employers are legally obliged to pay the National Minimum Wage, irrespective of their size.
In April 2016, The Government introduced The The National Living Wage for workers aged 25 and over. Launched a year earlier by George Osborne, it was part of the government’s aim to raise the wages of Workers aged 25+ to £9 per hour by 2020. Despite adopting the term “Living Wage”, The National Living wage has nothing to do The Living Wage: The Living Wage is set by the Living Wage Foundation, see details below.
Basically, the Government’s National Living Wage was actually just a new minimum wage for workers aged 25+ , but rebranded, if you will, as The National Living Wage. This is extremely confusing given that The Living Wage already existed, still does, and is completely different, see below.
The first increase to The Government’s National Living Wage for workers of 25yrs + came in April 2016. The next increase is due in April 2017 when The National Living Wage and the National Minimum Wage (for all other age bands) rates will increase. The National Living Wage for workers 25 yrs + increases by 30p to £7.50. The National Minimum wage rates increase for 21-24 yr olds rises by 10p to £7.05, for 18-20 yr olds by 5p to £5.60, for 16-17 yr olds by 5p to £4.05. Apprentice rates change according to age and time spent in Apprenticeship also, more details on these can be found here.
The National Living Wage will most likely increase each April, (and The National Minimum Wage each April and October) as the government pushes ahead to its target National Living Wage of £9p.h by 2020.
There are penalties on employers for failure to pay the correct amount, these are outlined below. But first, lets consider the Living Wage.
The Living Wage is a voluntary hourly rate, set independently and updated annually by Living Wage Foundation according to the basic cost of living in the UK. Don’t confuse the Government’s National Living Wage with this voluntary Living Wage. The Living Wage is a benchmark and a recommendation of what it will take to improve living standards now, not in 3, 4 or 5 years time.
The Government’s National Living Wage (and National Minimum Wage of course) is enforcable by law. The Living Wage Foundation’s Living wage is voluntary. Oliver Bonas became the first high street retailer to pay staff the accredited living wage in September in 2015.
Now we have that straightened out, a few more important points to remember about the National Living Wage and The National Minimum Wage.
Currently non payment is enforced by HMRC who can issue a notice of underpayment. This will calculate the arrears of pay to be paid and the penalty set at 100% of the total underpayment of the NMW, with a minimum penalty of £100 and a maximum penalty of £20,000. If the employer does not comply with the notice of underpayment, the enforcement officer can:
In 2016 the government started to name and shame companies who fail to pay the National Minimum Wage, though the CIPD reports that few companies have faced criminal challenges.
These changes are just one of the many changes to Employment Law coming this year. For more, read our article on New Employment Laws coming in 2017.