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As an employer, you can choose how much you pay your workers. However, there is a legal minimum wage you must comply with. This is the National Minimum Wage (NMW) or National Living Wage (NLW) for those aged 23 and over. If you do not pay the NMW or NLW where you are required to, Her Majesty’s Revenue and Customs (HMRC) may require you to pay the arrears, and you may be issued a fine. Additionally, your employee can ask you to produce their pay records to establish whether you have paid them the NMW or NLW. If you fail to produce such records within 14 days of their request, they can initiate a tribunal claim against you. To help you avoid such a dispute, this article will explain:
- what the NMW and NLW rates are;
- which employees are entitled to the NMW and NLW; and
- how to calculate the minimum hourly rate and the records you should keep.
What Do the NMW and NLW Mean?
Under UK employment law, most workers are entitled to minimum hourly pay. However, the actual hourly pay varies according to the worker’s age and whether or not they are an apprentice.
The NMW and NLW rates are reviewed every year. The rates per hour from April 2024 to March 2025 are:
- £6.40 for apprentices;
- £6.40 for those under 18;
- £8.60 for 18 to 20-year-olds;
- £11.44 for 21 years and over.
Who Should Receive the NMW and NLW?
Workers of school leaving age and above are entitled to the NMW. The school leaving age is usually 16 years old. On the other hand, from April 2024, workers who are 21 years old or over are entitled to receive the NLW. If you state a lower wage amount than the current rates on a worker’s employment contract, the payment stated will not be legally binding.
The law obliges you to pay workers the NMW or NLW even where they are:
- part-time workers;
- agency workers;
- workers on probation;
- disabled workers; or
- foreign workers.
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When Does the NMW Not Apply?
While your workers are likely entitled to the NMW and NLW, there are some instances where workers are not entitled to the minimum wage. For example, these are workers who are:
- self-employed;
- company directors;
- working voluntarily;
- on work experience as a higher or further education student; or
- living with you as their employer and, whilst not a family member, are not required to pay for their food or accommodation.
How to Calculate the Minimum Wage
When working out your worker’s minimum wage amount, you should know what to include in your calculations. Hence, you should include:
- National Insurance and Income Tax contributions;
- the advance of wages and loans as well as the repayment of these;
- anything your workers choose to pay for which they do not require for doing their job, such as meals;
- any accommodation you provide your workers; and
- misconduct penalty charges.
Likewise, you should not include:
- payments your workers make that are not for your benefit, such as their travel costs to and from work;
- anything your workers buy for their work that you are not required to refund;
- service and cover charges or tips; and
- additional pay you offer, such as when your workers work unsociable hour shifts.
What Records Should I Keep?
When paying your workers per the NMW or NLW, you must keep records that prove you have fulfilled your legal obligations.
Records should refer to the ‘pay reference periods’ or the worker’s pay period, such as weekly or monthly. The average hourly pay must be at least the NMW or NLW during the pay reference period.
Likewise, you are responsible for keeping records for at least six years if you first produce the records on or after 1 April 2021. For all documents you produced before then, the minimum amount for keeping records was three years. If you still have records from before 1 April 2021 that you kept under the previous three-year minimum, you must keep them for six years. Ultimately, you must keep records for six years starting from the last day of the pay reference period after the period in question.
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Key Takeaways
You must pay your workers the National Minimum Wage (NMW) or National Living Wage (NLW) where your workers qualify for it. Hence, you need to know who might be eligible and how to calculate their rates. Nevertheless, you should know that different rates apply depending on your workers’ age and whether or not they are an apprentice. Additionally, you must keep records of your compliance with the minimum wage rates. Ultimately, your failure to pay the NMW or NLW can lead to hefty penalties.
If you need help understanding the minimum wage, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. So call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
The National Minimum Wage and National Living Wage rates per hour change on 1 April every year. In addition, it varies depending upon the worker’s age and whether or not they are an apprentice.
The Real Living Wage is the only UK wage rate based on real living costs in the UK. This is a voluntary pay rate where businesses can provide financial remuneration above the National Minimum Wage or National Living Wage. The current ‘real living wage’ rate was announced in September 2022 as £10.90 per hour (across the UK) and £11.95 per hour in London and changes yearly. Further information about the real living wage can be found here.
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