What is the national minimum wage, the national living wage, and the real living wage
Once upon a time—way back in 2016—the legal minimum pay per hour in the UK was dictated by the National Minimum Wage.
Once upon a time—way back in 2016—the legal minimum pay per hour in the UK was dictated by the National Minimum Wage. The living wage was just a recommended hourly minimum set by the Living Wage Foundation, a campaigning organisation, with no legal grounding. But in 2016 the Conservative government introduced a National Living Wage, which replaced the National Minimum Wage for anyone above the age of 22.
Let’s talk minimum wage.
It’s the law
Regardless of shifting terminology, you must pay anyone who you employ, who is over the age of 23 and not a first-year apprentice, the National Living Wage of at least £9.50 per hour from 1st April 2022.
For everyone else, the minimum changes according to age and apprenticeship status.
For anyone below the age of 23, the National Minimum Wage applies with the following exceptions:
- Self-employed people who set their own rates
- Company directors
- Family members of the employer who are living in the employer’s home
It’s £4.81 for anyone of school leaving age and apprentices. From the age of 18 to 20, it’s £6.83, and then £9.18 for anyone 21 to 22.
It’s against the law for employers to pay anyone below these minimum thresholds, with fines of up to £20,000 per worker for failure to comply.
So, what’s the ‘Real’ Living Wage?
Many employers choose to pay their employees the ‘Real’ Living Wage. Not to be confused with the official National Living Wage, the ‘Real’ Living Wage uses a public consultation method called MIS to inform the rate. According to the Living Wage Foundation website, “MIS asks groups to identify what people need to be able to afford as a minimum. This is fed into a calculation of what someone needs to earn as a full-time salary, which is then converted to an hourly rate.” The foundation also calculate a separate rate for London, where living costs are around 7% higher.
According to the foundation employers can benefit from paying workers the Living Wage by increasing employee retention, decreasing absenteeism, and enhancing the quality of work produced.
A handy table
Still confused? Fear not, we’ve included a quick reference table, which covers the essential information.
|National Minimum Wage (NMW)||National Living Wage (NLW)||Real Living Wage|
|Amount||£4.81: School leaving age and apprentices £6.83: 18 to 20 £9.18: 21 to 22||£9.50||£9.90 across the UK £11.05 in London|
|Description||Government minimum hourly wage rate for ages from under 15/16 to 22||Government minimum hourly wage rate for ages 23 and over||Hourly wage rate based on actual cost of living for anyone living independently in the UK|
|Age group||School leaving age to 22||23 and over||Everyone living independently|
|Calculation method||Negotiated settlement based on recommendations from businesses and trade unions||A percentage of medium earnings, it aims to reach 66% of median earnings by 2024||Calculation made according to the cost of living, based on a basket of household goods and services.|
HR software and minimum wage
Of course, the easy way to stay on the right side of the law is to implement a good HR software system, which will calculate the minimum wage for you according to age and worker status. That way you can keep looking ahead, instead of over your shoulder. And you can input your own higher minimum too!