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National Minimum Wage and National Living Wage – what’s the difference?
Katy Cracknell • April 12, 2021
We get lots of enquiries and queries relating to the National Minimum Wage (NMW) and the National Living Wage (NLW) and in this blog we’ll address the differences between the two. We will also highlight some of the important things to remember if you are paying your employees either the NMW, the NLW or close to it.
The NMW regulations were introduced in 1999 and have now been place for over 20 years (for those of us that remember the introduction of these regulations it feels like an eternity ago!) Next, in 2016, came the National Living Wage (the obligatory minimum wage paid to workers in the UK who are aged 25 and above) which has now been extended to include those who are age 23 and over.
But what is the difference between the NWM and the NLW?
It can seem complicated but actually it’s fairly straight forward.
Let’s start with the NMW. The NMW is exactly what is says and is the minimum pay per hour workers are entitled to by law (meaning that all employers are legally obliged to pay it regardless of their size). Workers includes all employees and workers: part-time, flexible and agency workers and those working under apprenticeship schemes. There are different rates for each age group
and the government sets and reviews theses rates on an annual basis.
Next let’s consider the NLW. In short this is the highest band of the NMW which you must pay if an individual is aged 23 or over. Basically, the Government’s NLW is actually just a new minimum wage for workers over the age of 23.
There is just 1 thing to be cautious of and this is to not to get the NLW confused with the Living Wage as the 2 are different. The Living Wage is an amount which is set by the Living Wage Foundation, applies to all workers over 18, is voluntary
and has 2 rates (a UK and a London rate)
What are the pitfalls to look out for?
Most of the challenges that we have come up against have not been deliberate attempts to avoid paying NMW or NLW, but instead, have been born from a lack of understanding of the payments structure or the wider considerations when looking at how you are paying workers to ensure that they do not fall below the NMW.
One of the biggest pitfalls when looking at NMW is making sure that you take into account other deductions that you may be making from an individual. As an example, if you are paying NMW to an individual and then make a deduction from their salary for a uniform, this may mean that their salary drops below the NMW threshold, leaving you falling foul of the law.
What are the penalties?
Penalties for non-compliance can be high and can include repayment of any underpayments and fines but in extreme breaches can include disqualification as a company Director and public naming and shaming (nobody wants that!)
How to ensure you’re compliant
If you are paying workers the NMW or NLW or near to it, make sure you are paying the required amounts in line with current legislation. If you are in any doubt, contact us for a chat.
In addition, ensure that you track the annual changes to the NMW and NLW and alter your payroll in line with these changes. If you want to take the pressure off worrying about legislative updates, sign up to our Evolve package
today and we can ensure that you’re compliant, not only today, but also for all future changes.
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