What is the national minimum wage?

This article was updated on October 28.

The government sets a national minimum wage and a living minimum wage to guarantee the lowest paid workers a minimum wage. This is a legal requirement for all businesses of any size, so read on to make sure you are adhering to the latest rates and check the rules for different age groups and apprentices.

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National minimum wage – 2021 guide for employers

The UK minimum wage is set at an hourly rate. This means that even if your employees receive an annual salary or according to the number of items they manufacture, you will have to calculate the equivalent hourly rate.

If you are self-employed and run your own business or are a business owner, you are not entitled to the national minimum wage or the national living wage.

What is the National Minimum Wage Act 1998?

The 1998 National Minimum Wage Act was introduced to ensure that the lowest paid workers are paid fairly while protecting jobs.

Be aware that contracts with a lower rate of pay are not legally binding – and failure to comply with the minimum wage law may lead to an HMRC investigation.

When does the national minimum wage increase?

Minimum wage rates change every year in April 1st.

A rate hike in April 2021 indeed gave a significant wage increase to minimum wage and living wage workers. For example, the living wage rose 2.2% to £ 8.91, which is over £ 345 more per year for someone working full time.

Rates will rise again in April 2022, as announced in the Chancellor’s Fall Budget. For example, the living wage will increase by 6.6%, from £ 8.91 to £ 9.50 an hour.

National living wage vs minimum wage – what’s the difference?

In April 2016, the government introduced a new minimum wage rate for workers aged 25 and over – this is called the national living wage. And the April 2021 changes mean more young people are eligible for the salary, as the threshold now includes anyone aged 23 and over.

Although the rate is not necessarily based on the cost of living, the government has set itself a target of increasing the minimum living wage to two-thirds of the median earnings of all employees in the country by 2024. This target was reached in 2021 following the recommendations of the Low Compensation Commission.

So to sum up, the difference between the national minimum wage and the living wage is related to the age of the person:

  • the living wage applies to workers aged 23 and over

  • minimum wage applies to workers aged 16 to 22

  • 16 and 17 year old apprentices receive a different rate of pay

Expect more changes by 2024, where the living wage is expected to expand again to include 21 and 22 year olds.

What is the real living wage?

The national minimum wage should not be confused with the voluntary London Living Wage and the UK Living Wage, which is calculated on the basis of the actual cost of living and is not tied to the government.

Set up by the Living Wage Foundation, the Living Wage is a campaign that encourages employers to pay a salary that reflects daily costs in London and the UK. According to their data, the ‘real living wage’ in 2021 is £ 9.50 for the UK and slightly higher in London at £ 10.85.

What is the current national minimum wage?

National minimum wage – the threshold for under 25 is now below 23

As mentioned earlier, the minimum wage now applies to workers under 23. Here are the rates from April 2021:

  • 21 and 22 years old – £ 8.36

  • 18, 19, 20 years old – £ 6.56

National minimum wage for workers aged 17

From April 2021, the minimum wage rate for 16-17 year olds has been raised to £ 4.62 per hour.

What are the prices from April 2021?

The current national minimum wage, living wage and new rates for April 2022 are shown below.

Current hourly rate (April 2021 to March 2022) Hourly rate from April 2022
National living wage £ 8.91 £ 9.50
Price 21-22 years £ 8.36 £ 9.18
Price 18-20 years £ 6.56 £ 6.83
Tariff 16-17 years old £ 4.62 £ 4.81
Apprentice rate £ 4.30 £ 4.81
Accommodation compensation £ 8.36 £ 8.70

To check whether you are paying your employees the correct minimum wage or the correct living wage, you can use the government’s national minimum wage calculator.

Keep records

As a business owner, it is important to keep accurate records, and this includes proof that you are paying employees at least minimum wage. These may include payroll records showing total wages and hours worked, as well as any contracts and agreements.

You must keep these records for at least six years if they were created on or after April 1, 2021 (or if you still had records as of March 31 that you were required to keep under the previous three-year rule).

Our guide to record keeping gives more details on what other records you need to keep for your business and for how long. Or check out our guide to comparing the best accounting software for small businesses, some of which include a useful payroll feature.

Is there anything else you would like to know about minimum wage and living wage? Let us know in the comments.

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