Guide to the National Minimum Wage

National Minimum Wage UK | Employment Law | HR Solutions

The UK could have one of the highest national minimum wages in the world if the ambitious plans set out by both the current government and the Labour Party become a reality.

Twenty years since it was first introduced, the minimum wage has seen the wages of the lowest paid in the country grow faster than other workers.

What is the National Minimum Wage?

Most adult workers in the UK must be paid a minimum wage by law, regardless of the size of the business. The National Minimum Wage was first introduced on 1 April 1999 by the National Minimum Wage Act 1998 and the National Minimum Wage Regulations 1999. The UK’s minimum wage has steadily increased in recent years at an annual rate of between 20 to 30 pence per hour in the last 20 years. The UK has a relatively high minimum wage compared to other countries, according to Eurostat data. In 2019, the UK had the seventh-highest adult minimum wage out of 22 countries the data analysed. The country with the highest wages was found to be Luxembourg, followed by the Netherlands, Belgium, Germany, France and Ireland.

National Minimum Wage rates 2020

How much of a minimum wage a worker is entitled to is largely dependent on their age.  The government decides the rates each year, following the recommendations of the Low Pay Commission, an independent advisory group and the state of the economy at the time. For instance, it will look at the number of people in work, what’s happening to everyone’s earnings and how much people are paying for essentials such as housing and food.

The national minimum wage rates from 1st April 2020 are as follows:

  • Workers aged 25 and over – £8.72 an hour (National Living Wage)
  • Workers aged 21-24 – £8.20 an hour
  • Workers aged 18-20 – £6.45 an hour
  • Young workers aged 16-17 – £4.55 an hour
  • Apprentice rate (workers under 19 or in first year of apprenticeship) – £4.15 an hour.

How does it differ to the Living Wage?

In 2018, there were around 1.6 million jobs in the UK paying people the National Living Wage. It was introduced in April 2016 as an addition to the minimum wage scheme. It specifically applies to workers aged 25 and over and increases each April. As of April 2020 the National Living Wage rises to £8.72 per hour. From April 2019, the National Living Wage in the UK was £8.21 an hour. All employers must pay the National Living Wage to workers who qualify.

The National Living Wage shouldn’t be confused with the Living Wage which is an hourly rate based on the basic cost of living in the UK. It is calculated by the Living Wage Foundation and has no legal basis. Campaign group, the Living Wage Foundation, recommends that the Living Wage for UK workers should be £9.30 per hour across the UK and £10.75 per hour for workers in London. It says that more than 5,000 UK employers currently pay the ‘real’ living wage and the main benefit to employers is improved employee retention, productivity and a reduction in absenteeism.

Who is entitled to minimum wage?

All workers of at least school leaving age are covered by minimum wage legislation. This includes workers who are not self-employed. Businesses must pay the minimum wage rate to:

  • Part-time workers
  • Homeworkers
  • Casual labourers
  • Agricultural workers
  • Disabled workers
  • Apprentices, trainees and those in their probation period
  • Workers from outside the UK
  • Seafarers and British offshore workers temporally working outside the UK

The government provides detailed guidance to help employers calculate the hourly rate of pay under the National Minimum Wage. The guidance outlines what payments should be included and excluded, the reference period for averaging pay, what happens with accommodation and benefits in kind and the hours for which the minimum wage must be paid.

Penalties for not paying the National Minimum Wage

HM Revenue & Customs (HMRC) is the main enforcement agency who have extensive powers to investigate, inspect and enforce if an employer is believed to not be paying the National Minimum Wage or falsifies records. Doing so is a criminal offence and carries a maximum fine of £20,000 per employee. Employers can also be banned from being a company director for up to 15 years. The employer will have to pay in arrears which will be due within 14 days and the maximum figure is based on 100% of the unpaid wages. Penalties can be calculated online using the government’s calculator. The penalty is calculated as 50% of the total underpayment for all workers not paid the required amount during the reference period.

What to do if your employer fails to pay the minimum wage

If you believe that you are not paid the correct National Minimum Wage you should first try to resolve the issue with your employer. Sometimes an informal meeting can be the easiest way to resolve the matter. However, if you cannot resolve the issue informally, then you are entitled to make a formal complaint or take things further by complaining to the HMRC. Your initial complaint to the HMRC can be anonymous if you wish. HMRC has the power to investigate minimum wage complaints and issue a notice of arrears for any money owed to you. The HMRC can also fine employers and take them to court if they refuse to pay.

Payroll support for businesses

If you would like support with your payroll, call HR Solutions on 0844 3245840 or visit www.hrsolutions-uk.com/services/payroll-processing for more information.

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