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National Minimum and Living Wage

What is the National Minimum Wage?

The National Minimum Wage or NMW, as the name suggests is the minimum amount of pay that most workers in the UK are required to get paid. The NMW is a legal requirement. The rate of NMW that someone is entitled to depends on their age.

What is the Living Wage?

The Living Wage or LW, is a rate of pay that’s set by the Living Wage Foundation. There are two different UK rates, one for London and one for people outside of London. The Living Wage isn’t an obligation for employers but more than 3500 choose to pay it. It applies to any worker aged 18 or over and is voluntary.

Why are the National Minimum Wage (NMW) and Living Wage (LW) important for employers?

The National Minimum Wage and Living Wage are important for employers for several reasons. The first reason is that the NMW is obligatory. When you employ someone, you must pay them at least the NMW relative to their age. Whether or not you pay the Living Wage is up to you. Either way, you need to keep a record of the number of hours someone works for you and how much you have paid them. This information is evidence that you have respected your obligations with regards the NMW.

Why do they exist?

The National Minimum Wage came into play almost 20 years ago. It was originally the brainchild of Professor Sir George Bain whose belief was that everyone who works should be paid a fair wage. The overriding aim of the NMW was to make the whole UK labour market more efficient, fairer and more flexible.

Back in 2014, the Low Pay Commission called for the National Minimum Wage to be increased over and above the rate of inflation because the economy was doing well. Vince Cable who was then Business Secretary took this on board and made an out of course increase, but many people still feel that the minimum rates of pay are still too low.

What are the rates today?

The Living Wage is currently £9.00 per hour outside of London and £10.55 in London.

At the moment, the highest rate of NMW IS £8.21 per hour. This rate is reviewed annually and is set by the government. It applies to everyone over 25 years of age. For anyone under 25, the rates for 2018/2019 are:

Apprentice rate £3.90*
Under 18 years of age £4.35
18-20 years of age £6.15
21–24 years of age £7.70

*Apprentices must be paid the apprentice rate of NMW if they are under 19 or over 19 and in the first year of their apprenticeship. Over 19 years of age, they are entitled to the NMW that applies to their age.

What are the potential payroll complications when dealing with NMW and LW?

The application of the NMW can get complicated when things like accommodation, travelling time, piecework, work experience placements and internships are involved. Volunteers and family workers can also come under the banner of NMW. While not all of these situations give rise to the NMW, in certain circumstances, some do. So, because of the compulsory nature of the NMW, it’s really important for you, as an employer to understand when it needs to be applied and when it doesn’t.

The problem with the NMW isn’t always a human desire not to pay the right amount, it’s often caused by technical errors. However, the problem is that errors caused through ignorance don’t hold any weight with HMRC and you could still find yourself being publicly named and shamed for not paying the NMW – even if the error came about for technical reasons.

Some of the most common complications come from:

Salaried hours workers

Establishing the pay for someone classified as a salaried hours worker is a grey area and it falls to employers to determine how the annual number of hours that the salary represents is calculated. Complications arise when insufficient details are included in the employment contract or when an employee exceeds their annual figure or leaves.

Fees for dealing with Attachment of Earnings

Where employers are dealing with an attachment of earnings orders for an employee, a fee is often applied. Where the fee goes to the employer, the reduction could effectively reduce the employees pay below NMW. While deductions can be made that take the worker below their protected earnings rate, deductions that go to the employer can’t take the employee below the NMW.

Using the wrong Pay Reference Period

The Pay Reference Period is the time you pay a worker for. While there may be some periods when their wage is below the NMW, it is up to you to make sure that their average wage over the qualifying time they’ve worked for you is at least the NMW.

Not working with up to date rates

One of the commonest errors in NMW and LW processing is failing to use the most up to date rates of pay and, or failing to move workers to the new rate when they move to a new age band or finish the first year of their apprenticeship.

What could happen if you get it wrong?

The NMW is non-negotiable and as an employer, you are required to pay the right minimum rate for everyone you employ according to their age. Not doing so could see you being “named and shamed” publicly as well as facing financial penalties. Needless to say, ignoring your obligations, or accidentally failing to adhere to your obligations will also lead to a disgruntled worker.

Where can you go to get help?

If you’re having issues with the NMW or the LW, the first port of call to get help is the Acas Pay and Work Rights Helpline. You can call them on this number: 0300 123 1100. Alternatively, you can visit the dedicated Pay and Work Rights Helpline and Complaints Page of the Gov.UK website, which you can find here.

The other option, if you are in a situation where the National Minimum Wage or Living Wage are causing problems in your workplace, is to reach out and let the team at Payplus help.

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