As an employer, you must pay your workers a minimum wage for the average number of hours they work. The rate varies depending on their age, and whether they’re an apprentice.
You should be aware that the rates get changed by the government on 1 April every year.
If you fail to pay the correct minimum wage, you may be liable for any back pay, underpayment, or a penalty of up to £20,000 for each member of staff who has been underpaid.
You could also face being named publicly by the government, and banned from being a company director for up to 15 years.
In this guide, we will guide you through the definition of the national minimum wage, national living wage, calculate the minimum wage, and provide advice on the current and previous rates.
What is the national minimum wage?
The national minimum wage is the minimum pay per hour most workers are entitled to by law. It's the amount of money that your workers get paid before things like tax, national insurance and pension contributions have been taken off.
This is called the:
- National Living Wage if the worker is aged 23 or over.
- National Minimum Wage if the worker is aged under 23 or an apprentice.
National living wage
Most workers who are 23 or older must be paid at least the highest rate of the national minimum wage, which is defined as the national living wage.
Who can receive the minimum wage?
The minimum wage rules apply to anyone who is of at least school leaving age and classed as a worker. Almost all workers, whether full-time or part-time, are entitled to receive the minimum wages. These are:
- Employees with a contract of employment.
- Casual and zero-hours workers.
- Labourers and agricultural workers.
- Home workers.
- Workers who are paid by the number of items made.
- Apprentice workers.
- Agency and temporary staff.
- Employees on probation.
- Foreign workforce.
- Employees who are paid by commission.
The only types of workers that are not covered by the national minimum wage are:
- Self-employed by choice.
- Volunteers by choice.
- Company directors.
- Workers of the armed forces.
- Workers gaining experience as part of a course.
- Workers under school leaving age.
- Workers who are work shadowing.
If your employees live in your home, they are legally entitled to the correct minimum wage, unless:
- They are a member of your family.
- They share work and leisure activities and you don't charge them for meals or accommodation.
Apprentices who meet both of the following conditions are entitled to the minimum amount of pay for their age:
- Being aged 19 or over.
- Having completed the first year of their apprenticeship.
It’s worth noting that apprentice training or study time should count towards working time and must be paid accordingly.
We'll provide some examples further down in this guide to help you better understand the topic.
How to calculate the minimum wage
In order for you to ensure that your employee is being paid the minimum wage correctly, you need to go through the following steps:
1. Make sure that you pay your worker in the correct way for the type of work that they do:
- Salaried hours work.
- Time work.
- Output work.
- Unmeasured work.
2. Identify the particular period for the worker's pay. It can cover any period of time up to one calendar month, but never more than that.
3. Work out the average hourly rate of pay for the pay reference period. You should:
- Calculate the pay for the period.
- Calculate the hours worked in the period.
- Divide the pay for the period by the number of hours worked in the period, to give an average hourly rate for the period.
4. Identify the minimum wage rate that applies to the worker.
5. Check that the average hourly rate of pay for the period is not less than the relevant minimum wage rate. If it is less, you must pay your worker an additional amount to ensure that at least the minimum wage is being paid.
Here are two examples of how to work out the minimum wage:
Eden worked 26 hours last week and the money she earned for the job was £271. She is 25 and is eligible for the minimum wage rate of £10.42 per hour. £271 divided by 26 is £10.42, so in this example, Eden has been paid the minimum wage.
John is an apprentice aged 21 and he has completed the first year of his apprenticeship. He worked 40 hours last week and the money he earned for the job was £407.20.
In the example above, because John is over 19 years old and completed the first year of his apprenticeship, he is entitled to minimum pay for his age, which is £10.18. Dividing £407.20 by 40 gives £10.18, which means John has been paid the minimum wage.
What doesn’t count towards minimum wage pay?
The following payments or portions of a worker's salary made by an employer don't count towards minimum wage pay:
- Tips, gratuities, service charges and cover charges.
- Overtime and shift premia.
- Allowances.
- Shares and share options.
- Benefits in kind (even if they have a monetary value).
- Loans.
- Advances in wages.
- Pension payments.
- Lump sums on retirement.
- Redundancy payments.
- Rewards under staff suggestions schemes.
- Other payments by an employer to reimburse a worker’s expenses.
Also, if you are paid at a higher rate than normal, the premium element of pay doesn’t count towards your minimum wage pay.
Example
Liz is a worker aged over 23 and she is paid £10.42 an hour for 40 hours per week. The money she has earned for her job is £416.80 but then a deduction of £55 is made for a uniform that she has been given, so she only received £361.80 or the equivalent of £9.04 an hour, which is below the minimum wage. Liz's employer owes her arrears in this example.
Minimum wage rates for 2023/24
From April 2022 onwards, the national minimum wage rates are as follows:
- 23 and over: £10.42
- 21 to 22: £10.18
- 18 to 20: £7.49
- Under 18: £5.28
- Apprentice rate: £5.28
As mentioned previously, the current rates indicated above might change next year according to decisions made by the government.
Previous rates
Below are the previous rates for the national minimum wage from April 2016 through April 2021:
Rates from 1 April 2022
April 2022 to March 2023
- Apprentice: £4.81
- Under 18: £4.81
- 18 to 20: £6.83
- 21 to 22: £9.18
- 23 and over: £9.50
Rates before 1 April 2021
April 2021 to March 2022
- Apprentice: £4.30
- Under 18: £4.62
- 18 to 20: £6.56
- 21 to 22: £8.36
- 23 and over: £8.91
April 2020 to March 2021
- Apprentice: £4.15
- Under 18: £4.55
- 18 to 20: £6.45
- 21 to 24: £8.20
- 25 and over: £8.72
April 2019 to March 2020
- Apprentice: £3.90
- Under 18: £4.35
- 18 to 20: £6.15
- 21 to 24: £7.70
- 25 and over: £8.21
April 2018 to March 2019
- Apprentice: £3.70
- Under 18: £4.20
- 18 to 20: £5.90
- 21 to 24: £7.38
- 25 and over: £7.83
April 2017 to March 2018
- Apprentice: £3.50
- Under 18: £4.05
- 18 to 20: £5.60
- 21 to 24: £7.05
- 25 and over: £7.50
October 2016 to March 2017
- Apprentice: £3.40
- Under 18: £4.00
- 18 to 20: £5.55
- 21 to 24: £6.95
- 25 and over: £7.20
April 2016 to September 2016
- Apprentice: £3.30
- Under 18: £3.87
- 18 to 20: £5.30
- 21 to 24: £6.70
- 25 and over: £7.20
What happens if an employer does not pay the minimum wage?
It's important to keep in mind that you as the employer can't reduce or amend the basic pay even by agreement between you and your employee.
If a worker who is legally entitled to the national minimum wage feels that they are not being paid correctly, they have the right to raise a payment dispute. They may ask you to go through the calculations and check that everything is being done correctly.
If employers fail to resolve this internally, the employee can seek legal assistance to resolve the situation. They can either refer to a neutral intermediary or use the HMRC enforcement process and ask them for an investigation.
Investigation by HMRC
Employees can report their employer to HM Revenue & Customs for being paid less than the minimum wage. The HMRC would then undertake an employer investigation and if they find out that the employer isn't paying the least minimum wage, they can send a notice of arrears plus issue the employer a penalty for not following the minimum wage rates.
HMRC can also prosecute employers in civil court if they fail to pay the national minimum wage or national living wage. The maximum fine for non-payment is £20,000 per worker. Employers who fail to pay can be named publicly and banned from being a company director for up to 15 years.
Taken to tribunal or court
The employer can be taken to an employment tribunal if their employee is subjected to any of the following situations:
- They have not been receiving the national minimum wage or national living wage.
- They have been dismissed or experienced unfair treatment known as "detriment" because of their national minimum wage entitlement.
- They have been discriminated against because of their age, which entitled them to a higher rate.
You must maintain payment records to show that national minimum wages have been paid correctly for the current tax year plus the previous 3 years. It is a criminal offence to fail to keep such records.
The Living Wage Foundation
The Living Wage Foundation is a UK based campaigning organisation whose aim is to get more employers to pay a living wage.
The Living Wage Foundation's declaration of living wages has no legal standing. In the UK, the statutory national minimum wage is established by rules enacted under the National Minimum Wage Act 1998.
There are employers who voluntarily increase their workers' pay at the rate of the Living Wage Foundation.
Justifications for paying the real living wage
An employer paying the real national living wage rates might be thinking of the advantages of this approach. The following are some common reasons for paying the real living wage:
- Improved employee retention.
- Increased productivity during working time, which leads to a decrease in the unit cost of production.
- Decreased staff absenteeism.
- Improved social reputation.
While there are numerous other benefits to paying the national living wage, generally speaking, you can ensure that as an employer, you are contributing to reducing the scope and depth of working poverty.
Get expert advice on minimum wage rates with Peninsula
Minimum wage rates change every year as a result of government reviews. According to employment rights, employers must constantly be aware of their worker's pay which depends on their age.
If you fail to pay the right wage before tax and national insurance have been taken off, you could face a £20,000 penalty for each employee who is underpaid, in addition to several other liabilities.
Peninsula can offer you expert advice for managing minimum wage rates and payments. Our HR team offers 24/7 HR advice 365 days a year, with fully trained counsellors ready to help.
Book a free consultation with one of our HR consultants to receive tips on the national minimum wage and the national living wage. Call 0800 028 2420
