These terms and the changing age bands cause much confusion. This article explains the difference between the National Living Wage and the National Minimum Wage and outlines the new increased rates from 1st April 2022. We also highlight the penalties for employers for non compliance, where common mistakes occur, and how to avoid these.
New wage rates from 1 April 2022
From 1st April 2022, all workers aged 23 and over are legally entitled to be paid at least £9.50 per hour. This is the National Living Wage (NLW). The new rate represents an increase of 59p per hour (6.6%).
Last year the the National Living Wage age band was widened to include 23 and 24 yr olds. By 2024 it will apply to all workers aged 21 and over.
Apprentices are entitled to the apprentice rate if they’re either:
- under 19 or
- aged 19 or over and in the first year of their apprenticeship.
So in 2022, an apprentice aged 21 in the first year of their apprenticeship is entitled to a minimum hourly rate of £4.81.
Apprentices are entitled to the minimum wage for their age if they :
- are aged 19 or over AND
- have completed the first year of their apprenticeship.
So an apprentice aged 21 who has completed the first year of their apprenticeship is entitled to a minimum hourly rate of £9.18.
What is the National Minimum Wage? (NMW)
The National Minimum wage (NMW) is the minimum pay per hour that workers are entitled to by law. This includes all employees and workers, including part-time, flexible, agency workers, those on zero hours contracts and those working under apprenticeship schemes; everyone in fact except the genuinely self-employed.
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 April each year and are advised by the independent body Low Pay Commission.
All employers are legally obliged to pay the National Minimum Wage, irrespective of their size. The Government has published information on how to ensure you are paying your workers at least the minimum wage, and updated guidance on calculating the minimum wage.
What is the National Living Wage? (NLW)
The National Living wage is simply the highest band of the National Minimum Wage which staff should be paid if they are (from 1st April 2021) aged 23 or over.
There are penalties on employers for failure to pay the correct National Minimum Wage or National Living Wage amount, these are outlined below.
The Government publishes a name and shame list of employers who fail to pay staff the National Minimum Wage. In the latest round in August 2021 191 employers were exposed, amongst these were household names (John Lewis, Welcome Break, Body Shop, Pret a manger) . HMRC found that these 191 owed over £2.1m to over 34,000 workers for breaches going back to 2011. The culprits were ordered to bay back what they owed plus a total of £3.2 million in fines.
Mistakes can occur, and any organisation employing staff at the lower end of the pay scale need to take extra care. Amongst the 191 employers fined in August 21, mistakes come when deducting wages for expenses and uniforms, when calculating variable hours and overtime hours worked, and when applying the (wrong) apprenticeship rate. With age ranges for the National Living Wage being extended, (last year in 2021 and again in 2024) check carefully the ages of staff, and ensure these are logged correctly on payroll information.
NLW, NMW Wage rates, penalties for non compliance:
HMRC enforces the NMW and NLW. They can enforce non payment by issuing 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 an 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.
A package of measures was introduced back in 2015 with the aim of improving employers’ compliance with the NMW and the NLW.
- Penalties 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.
A dedicated HMRC team now pursues the most serious cases of employers deliberately not paying the NMW and NLW. The HMRC team can impose fines, refer cases for criminal prosecution and, of course, name and shame 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, retail and franchising sectors.
- Individual employers can be disqualified 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.
Employees concerned they are not being paid the NLW or NMW are advised to check the Check your pay website, check with Acas then speak to their employer in the first instance and raise a grievance if necessary. They can report an employer to HMRC and take their employer to a tribunal (following early conciliation through Acas) if the situation remains unresolved.
Finally, what’s The Living Wage?
The Living Wage is a voluntary hourly rate, independently calculated each year by Living Wage Foundation to meet the real cost of living. It’s voluntarily paid by over 10,000 UK employers. 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 2, 3 or 5 years time.
The Government’s National Living Wage and National Minimum Wage of course is enforceable by law. The Living Wage Foundation’s Living wage is voluntary.
The current living wage is £9.90 per hour across the UK and £11.05 per hour in London.
In order to become an accredited Living Wage Employer employers need to pay all of your employees at least a living wage, and to have a plan to extend this wage to regular on-site subcontracted staff as well.
Navigating the National Living Wage and National Minimum Wage payments correctly can be difficult, if you are in any doubt, please get in touch.