What is the minimum wage?
The national minimum wage (NMW) is the minimum hourly rate that must be paid to all workers or employees in the UK between the school leaving age (usually 16) up to the age of 23.
The minimum wage increases every April. The current minimum wage rates (effective from 1 April 2023) are:
ages 23 and over - £10.42
21 to 22 - £10.18
18 to 20 - £7.49
under 18s - £5.28
apprentices - (which applies to people aged under 19 or people over 19, in the first year of their apprenticeship) - £5.28
These are the minimum hourly rates set by law and they are subject to change on an annual basis, generally on 1 October. Workers cannot ‘contract out’ of these rates and all employers, irrespective of size, are required to pay the NMW.
What is the national living wage?
The national living wage (NLW) is a higher rate of the national minimum wage for all workers and employees who are 23 and over. The current NLW came into effect on 1 April 2022 and currently stands at £10.42 per hour. As with the NMW, all employers must pay the NLW or a higher rate as a minimum legal obligation - this is not negotiable with staff. The NLW rate is also reviewed annually, with any new changes due to come into effect at the start of April.
What is the recommended living wage?
The Living Wage Foundation has been recommending its own version of a ‘living wage since before the NLW came into effect. It’s known as the ‘real Living Wage’ and is an independently calculated hourly rate reflecting the actual cost of living. It is higher than the NLW and, although many employers choose to adopt it, there is no legal obligation to pay these rates. Currently, the living wage, as recommended by the foundation, stands at £11.95 per hour in London and £10.90 per hour outside London.
What are the penalties for not paying the correct wage?
It is a criminal offence for employers to not pay someone the NMW or NLW, or to fake payment records.
Employers who fail to pay the correct NMW or NLW:
have to make up any shortfalls, and
can be issued with a Notice of Underpayment by HMRC (this requires them to pay a penalty of 200% of the total amount of underpayment). This amount will be halved if paid within 14 days of the notice - and the maximum penalty per worker is £20,000
Businesses that flout minimum wage regulations can also be ‘named and shamed’ by the Department for Business, Energy & Industrial Strategy (formerly BIS) and directors can be disqualified for up to 15 years.
Do freelance workers need to be paid the minimum wage?
As a general rule, freelancers who are genuinely self-employed are not covered by the NMW or NLW rules. However, it is important to establish their employment status to ensure that they would not be considered workers or employees by a court.
Note that an Employment Tribunal decision found that Uber drivers should be classed as workers and are therefore entitled to minimum wage rates - despite the company arguing that they are actually self-employed. An appeal is expected.
Can I include tips when calculating minimum wage?
Tips do not count towards minimum wage so should not be taken into account by employers when calculating NMW or NLW payments.
Do zero-hours workers need to be paid the national minimum wage?
Anyone working under a Zero-hours contract will be classed as either an employee or worker and, as such, will be entitled to the NMW or NLW.
Are there any circumstances where I don’t have to pay minimum wage?
Businesses are not required to pay the minimum wage to consultants, freelancers or contractors who are genuinely self-employed. Examples of people not entitled to the NMW or NLW include:
higher and further education students on a work placement for up to one year
workers on a government employment scheme (eg Work Programme)
children below the school leaving age (although other restrictions apply in respect of child workers)
For a full list of categories of people not entitled to the minimum wage rates, see the Government website.