National Minimum and Living Wage Changes Explained

May 9, 2017 National Minimum and Living Wage

As of April 1, the hourly rates for the National Minimum Wage and National Living Wage increased.

This is the third time the rates have increased since April last year, when the National Living Wage was first introduced alongside the National Minimum Wage. With five different minimum pay tiers coupled with regular rate changes, keeping track and staying compliant has become difficult for employers.

Here is a brief overview of the changes which have occurred since last April, what you need to know as an employer and what the current rates are.

The Living Wage

In April 2016, the government adopted the Low Pay Commission’s recommendation to create a new statutory pay rate to sit on top of the existing minimum wage structure. The National Living Wage applies to workers aged 25 and over and is the highest of the statutory payment tiers.

With the introduction of the National Living Wage, there were now five payment tiers in force:

  • The National Living Wage, for over 25s
  • The National Minimum Wage for workers aged 21 to 24
  • The National Minimum Wage for workers aged 18 to 20
  • The National Minimum Wage for under 18s
  • The National Minimum Wage for Apprentices.

In effect, the old adult minimum wage now only applies to 21 to 24 year olds, and has been replaced for most workers by the living wage.

Current Rates

Here are the current statutory minimum hourly rates for all five tiers effective from April 2017, with the previous rates set in October 2016:

  April 2017 October 2016 Increase (%)
Over 25s £7.50 £7.20 4.2 %
21 to 24 £7.05 £6.95 1.4 %
18 to 20 £5.60 £5.55 0.9 %
Under 18s £4.05 £4.00 1.25 %
Apprentices £3.50 £3.40 2.9 %

What Employers Need to Know

Employers are obliged to pay workers at or above the hourly rate applicable to their age band, or their employment status as an apprentice. Not paying staff at the correct rate will result in enforcement action to pay the difference, and persistent non-compliance can result in a penalty notice being issued against the employer.

The Minimum and Living Wage rates apply to all workers except those who are recognised by HMRC as self employed. A current crackdown against so-called ‘intermediaries’ under IR35 legislation is partly aimed at bringing more contract workers under the minimum wage structure.

Minimum and Living Wage rates are calculated by gross pay, and include all standard financial awards and payments made as a regular part of employment. Ad hoc extras such as overtime payments, on call allowances and tips are not included in the calculations. However, if part of the contracted work includes payment by commission, this would form part of the calculation. In such circumstances, pay can be averaged over the relevant period for the purposes of determining compliance.