The National Minimum Wage (NMW) was introduced on 1 April 1999 and is reviewed each year by the Low Pay Commission.
From April 2016 the National Living Wage (NLW) has been introduced for workers aged 25 and over. Employers are liable to be penalised for not complying with the NMW and NLW rules. HMRC are the agency that ensures enforcement of the NMW and NLW.
We highlight below the main principles of the minimum wage regulations.
Please contact us for further specific advice.
What are the rates of the NMW and NLW?
There are different levels of NMW and NLW, depending on your age and whether you are an apprentice. The rates are given in the following table:
| Current rates | Rate from 1 October 2016 | |
| NLW for workers aged 25 and over (from 1 April 2016) | £7.20 | £7.20 |
| the main rate for workers aged 21-24 | £6.70 | £6.95 |
| the 18-20 rate | £5.30 | £5.55 |
| the 16-17 rate for workers above school leaving age but under 18 | £3.87 | £4.00 |
| the apprentice rate, for apprentices under 19 or 19 or over and in the first year of their apprenticeship | £3.30 | £3.40 |
The NMW is updated from 1 October each year so the current rates in the table above apply from 1 October 2015. Details of the rates to apply from 1 October 2016 have been announced.
The NMW and NLW will be next uprated from April 2017 so that both rates will be updated from April each year.
There are no exemptions from paying the NMW on the grounds of the size of the business.
What is the National Living Wage?
The National Living Wage (NLW) of £7.20 is the single hourly rate for adults aged 25 years and above from 1st April 2016. The NLW rate is not connected to the rate used by the Living Wage Foundation
Who does the apprentice rate apply to?
The apprentice rate applies to:
• apprentices under 19
• apprentices aged 19 and over, but in the first year of their apprenticeship.
If you are of compulsory school age you are not entitled to the NMW.
Fair piece rate
In addition, there is a fair piece rate which means that employers must pay their output workers the minimum wage for every hour they work based on an hourly rate derived from the time it takes a worker working at average speed to produce the work in question.
The entitlement of workers paid under this system is uprated by 20%. This means that the number reached after dividing the NMW by the average hourly output rate must be multiplied by 1.2 in order to calculate the fair piece rate.
Key questions
Who does not have to be paid the National Minimum Wage?
• The genuinely self-employed.
• Child workers - anyone of compulsory school age (ie. until the last Friday in June of the school year they turn 16).
• Company directors who do not have contracts of employment.
• Some other trainees on government funded schemes or programmes supported by the European Social Fund.
• Students doing work experience as part of a higher education course.
• People living and working within the family, for example au pairs.
• Friends and neighbours helping out under informal arrangements.
• Members of the armed forces.
• Certain government schemes at pre-apprenticeship level, such as:
- in England, Programme Led Apprenticeships
- in Scotland, Get Ready for Work or Skillseekers
- in Northern Ireland, Programme Led Apprenticeships or Training for Success
- in Wales, Skillbuild.
• Government employment programmes.
• European Community Leonardo da Vinci, Youth in Action, Erasmus and Comenius programmes.
• Share fishermen.
• Prisoners.
• Volunteers and voluntary workers.
• Religious and other communities.
Please note that HMRC have the power to serve an enforcement notice requiring the payment of at least the NMW, including arrears, to all family members working for a limited company.
What is taken into account in deciding whether the NMW has been paid?
The amounts to be compared with the NMW include basic pay, incentives, bonuses and performance related pay and also the value of any accommodation provided with the job.
Overtime, shift premiums, service charges, tips, gratuities, cover charges and regional allowances are not to be taken into account and benefits other than accommodation are also excluded.
What records are needed to demonstrate compliance?
There is no precise requirement but the records must be able to show that the rules have been complied with if either the HMRC or an Employment Tribunal requests this to be demonstrated. Where levels of pay are significantly above the level of the NMW, special records are not likely to be necessary.
It is recommended that the relevant records are kept for at least six years.
Normally there is not likely to be any serious difficulty in demonstrating compliance where employees are paid at hourly, weekly, monthly or annual rates but there may be difficulties where workers are paid on piece-rates and where, for example, they work as home-workers.
Where piece rates are used, employers must give each worker a written notice containing specified information before the start of the relevant pay period. This includes confirmation of the ‘mean’ hourly output and pay rates for doing their job.
What rights do workers have?
Workers are allowed to see their own pay records and can complain to an Employment Tribunal if not able to do so.
They can also complain to HMRC or to a Tribunal if they have not been paid the NMW. They can call the confidential helpline 0800 917 2368.
What are the penalties for non-compliance?
Enforcement notices can be issued if underpayments are discovered and there can be a penalty equivalent to twice the hourly amount of the NMW for each worker that has been underpaid multiplied by the number of days that enforcement notices are not complied with.
There could also be a maximum fine of £20,000 for having committed a criminal offence.
Employers who refuse to pay the NMW may also face a fine in excess of £200 for every worker they underpay. Employers have to pay back arrears they owe to workers and those who refused to pay up could be penalised.
The financial penalty imposed on employers that fail to pay employees the NMW is 200% of the amount by which a worker has been paid below the NMW.
How we can help
We will be more than happy to provide you with assistance or any additional information required. We also offer a full payroll service - please contact us if you would like more information.
For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.
