Minimum wage

The national minimum wage (NMW) is the minimum hourly rate which must be paid to all workers or employees in the UK between the school leaving age (usually 16) up until the age of 23. Current rates (effective from 1 April 2021) are:

• Ages 23 and over: £8.91

• 21 to 22: £8.36

• 18 to 20: £6.56

• Under 18s: £4.62

• Apprentices: £4.30

These are the minimum hourly rates prescribed 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.

The national living wage (NLW) is a higher rate of the national minimum wage for all workers and employees who are 23 and over. It came into effect on 1 April 2021 and currently stands at £8.91 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.

The Living Wage Foundation has been recommending its own version of a ‘living wage’ - which is an independently calculated hourly rate reflecting the actual cost of living - since before the NLW came into effect. 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 £10.85 per hour in London and £9.50 per hour outside London.

It is a criminal offence for employers to not pay someone the NMW or NLW, or to fake payment records.

In addition to making up for any shortfalls, employers who fail to pay the correct NMW or NLW can be issued with a Notice of Underpayment by HMRC which requires them to pay a penalty of 200% of the total amount of underpayment (ie the difference between the amount paid and the correct NMW or NLW rate). This amount will be halved if paid within 14 days of the notice - and the maximum penalty per worker is £20,000.

Furthermore, businesses which flout minimum wage regulations can be ‘named and shamed’ by the Department for Business, Energy & Industrial Strategy (formerly BIS) and directors can be disqualified for up to 15 years.

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 status to ensure that they would not be considered as workers or employees by a court.

Note that a recent 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.

Tips do not count towards minimum wage so should not be taken into account by employers when calculating NMW or NLW payments.

Anyone working under a Zero hours contract will be classed as either an employee or worker and, as such, will be entitled to the correct rate of NMW or NLW.

Companies are not required to pay the minimum wage to consultants, freelancers or contractors who are genuinely self employed. Voluntary workers are not entitled to the NMW or NLW - and neither are higher and further education students on a work placement for up to one year. Furthermore, workers on a government employment scheme (eg Work Programme) cannot claim the minimum rate and nor can 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 GOV.UK website.