National Minimum Wage, National Living Wage & rates 2017 explained

Posted by : | 23rd Sep 2015 | Employment law for HR Directors


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.

Source ACAS.

Source ACAS.

Now for the explanation of these terms.

What is the National Minimum Wage? (NMW)

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.

So,what is the Living Wage?

VOLUNTARY 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.

Image Credited to www.Thelivingwage.org.uk

Image Credited to www.Thelivingwage.org.uk

Now we have that straightened out, a few more important points to remember about the National Living Wage and The National Minimum Wage.

National Living Wage, National Minimum Wage: Penalties for non compliance:

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:

  • issue civil proceedings in the civil courts or in the employment tribunal to recover the sums that should have been paid. If, following the judgment, the debt remains unpaid, HMRC will take steps to enforce the debt.
  • prosecute the employer to seek a criminal conviction.

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.

A package of measures intended to improve compliance with the NMW and the NLW  include:

  • Doubling the penalties for non-payment. From April 2016, penalties have increased from 100% of arrears to 200% of arrears (halved if employers pay within 14 days). The maximum penalty of £20,000 per worker remains unchanged.
  • Increasing the budget for enforcement of the NMW and NLW in 2016.
    a new HMRC team was created in 2016, dedicated to pursuing the most serious cases of employers deliberately not paying the NMW and NLW. They have powers including the imposition of penalties, referring cases for criminal prosecution and naming and shaming the worst-offending employers. HMRC’s current approach is to target the high-risk areas for non-payment of the NMW, which are currently the social care, hairdressing and retail sectors.
  • The introduction of a new penalty of disqualification from being a Company Director for up to 15 years for the non-payment of the NMW and the NLW.
  • The creation of a new position called the Director of Labour Market Enforcement and Exploitation, which will oversee enforcement of the NMW and NLW, the Employment Agency Standards Inspectorate and the Gangmasters Licensing Authority.
    Find current NMW rates here.

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.

Contact The Legal Partners or me directly for help or advice on any queries relating to National Minimum Wage, or National Living Wage, Living Wage.

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