National Minimum Wage and the National Living Wage
The National Minimum Wage (NMW) is the minimum pay per hour most workers are entitled to by law. This rate will depend on a worker’s age and if they are an apprentice. Any changes to the rates are normally introduced in October each year.
The rates in use until 31 March 2016 were:
- £6.70 for workers aged 21 and over
- £5.30 for workers aged 18 to 20
- £3.87 for workers aged 16 and 17, who are above school leaving age but under the age of 18
- £3.30 for apprentices under the age of 19 or those aged 19 and over who are in their first year of an apprenticeship.
Introduction of the National Living Wage
From 1st April 2016, the government has introduced a new compulsory National Living Wage (NLW) for workers aged 25 and above. This has initially been set at £7.20 per hour; a rise of 50p relative to the current NMW rate. Please note that the National Living Wage is different from the Living Wage which can be operated on a voluntary basis.
The Low Pay Commission (LPC) will recommend future rises, with the Government aiming for it to reach £9 per hour by 2020.
The Office for Budget Responsibility has estimated that the cost to businesses will amount to 1% of profits. To offset the cost, the Government is cutting Corporation Tax and businesses will still benefit from a cut in their National Insurance contributions. From April 2016, the Government’s Employment Allowance has been increased by 50% to £3,000 per annum.
More information about the National Living Wage can be found on the Government’s website.
Key Points to note
- Most workers over school leaving age are now entitled to receive the NMW
- The minimum rate depends on the age of the worker
- The NMW rate is reviewed annually by the LPC and a further change to rates is expected in October 2016
- The compulsory NLW is the new rate set for people aged 25 and over and came into force on 1st April 2016
- If inspected, HM Revenue & Customs can take employers to court that are not paying the correct NMW.