In the UK there is a legal concept of a National Minimum Wage that has been in place since 1999. It helps to ensure that workers receive fair pay for their efforts and reduce income inequality by setting the minimum salary that an employer can pay to an employee.
As a small business owner, when you look to employ your first member of staff you need to know the regulations in place that help protect employees so I’ll cover the current rates, how it’s calculated, explain some of the exemptions and exceptions, and the enforcement and penalties for non-compliance.
What is the purpose of the National Minimum Wage?
The National Minimum Wage was introduced in the UK in 1999 as a response to concerns about low pay and exploitation of workers. It was a landmark legislation that aimed to provide a statutory minimum level for wages, ensuring that all workers earn a decent income. The main purpose was to address income inequality and poverty, as well as promote social justice.
Before the introduction of the National Minimum Wage, there was no legal requirement for employers to pay a minimum wage. This meant that some workers were being paid unacceptably low wages, leading to financial hardship and a cycle of poverty. The legislation aimed to rectify this by establishing a minimum wage that employers have to comply with.
What is the current minimum wage in the UK?
The National Minimum Wage rates in the UK are subject to regular review and adjustment to keep pace with inflation and changes in the cost of living.
As of January 2024, the rates are as follows:
- For workers aged 23 and over: £10.42 per hour.
- For workers aged 21 to 22: £10.18 per hour.
- For workers aged 18 to 20: £7.49 per hour.
- For workers under 18: £5.28 per hour.
- For apprentices: £5.28 per hour.
These rates are reviewed and new rates published by the Government each April.
In April 2024 the rates will increase to:
- For workers aged 21 and over: £11.44 per hour.
- For workers aged 18 to 20: £8.60 per hour.
- For workers under 18: £6.40 per hour.
- For apprentices: £6.40 per hour.
It is important to note that these rates are the minimum that employers are legally required to pay their workers. Some employers may choose to pay their employees more than the minimum wage, depending on factors such as the industry, location, and skills required for the job.
How the minimum wage is calculated
The calculation of the National Minimum Wage is relatively straightforward. It is based on the worker’s age and their status as an apprentice. The rates are set by the government and are reviewed annually.
For workers aged 23 and over, the current rate is £10.42 per hour (this will increase in April 2024 to £11.44). This rate is determined by taking into account factors such as inflation, average earnings, and the impact on businesses. The rates for younger workers and apprentices are set at a lower level to reflect their lower level of experience and skill.
It is important to note that the National Minimum Wage is calculated based on the worker’s gross pay before deductions such as taxes and national insurance contributions. Therefore, if a worker’s gross pay falls below the minimum wage rate after deductions, the employer is still required to top up their wages to meet the minimum requirement.
Exemptions and exceptions to the minimum wage
While the minimum wage applies to the majority of workers in the UK, there are some exemptions and exceptions to be aware of. These include:
- Self-employed individuals: The National Minimum Wage legislation does not apply to self-employed individuals, as they are responsible for setting their own rates of pay. However, it is important to note that some self-employed individuals may fall under the definition of a worker and, therefore, be entitled to the National Minimum Wage.
- Volunteers and interns: Individuals who are working in a voluntary capacity or undertaking an internship that is not a formal employment arrangement are not entitled to the National Minimum Wage. However, if an intern meets the definition of a worker, they may be entitled to the minimum wage.
- Some agricultural workers: Agricultural workers who are paid under the agricultural wages system or other specific arrangements may be subject to different minimum wage rates.
- Family members: Family members who live in the employer’s home and undertake domestic work are not entitled to the National Minimum Wage.
It is essential for both employers and workers to fully understand the exemptions and exceptions to ensure compliance with the National Minimum Wage legislation.
What are the penalties for non-compliance?
As an employer, you have a legal obligation to comply with the National Minimum Wage legislation. The enforcement is primarily the responsibility of the HM Revenue and Customs (HMRC). It has the power to investigate complaints, carry out inspections, and impose penalties for non-compliance.
If an employer is found to be paying below the National Minimum Wage, they may be required to pay back the arrears to the affected workers. Additionally, they may face financial penalties, which can vary depending on the severity of the non-compliance. The maximum penalty for non-payment of the National Minimum Wage is £20,000 per worker. Employers who fail to comply with the legislation can also be publicly named and shamed by the government.
Top tips for employers and employees
For employers, it is essential to understand and comply with the National Minimum Wage legislation to avoid financial penalties and damage to their reputation. Here are some tips for employers:
- Stay up to date with the latest National Minimum Wage rates: The rates are regularly reviewed by the government, so it is important to ensure that you are paying your workers at least the minimum wage.
- Review your payroll systems: Make sure that your payroll systems are capable of accurately calculating the National Minimum Wage based on the worker’s age and employment status.
- Keep records: Maintain accurate records of the hours worked and the wages paid to each worker. This will help you demonstrate compliance with the National Minimum Wage legislation if required.
For employees, it is important to be aware of your rights and ensure that you are receiving the correct minimum wage. Here are some tips for employees:
- Know your age category: Familiarize yourself with the National Minimum Wage rates for your age category to ensure that you are being paid correctly.
- Keep track of your hours: Keep a record of the hours you work to ensure that you are being paid for all the hours worked.
- Report any non-compliance: If you believe that you are not being paid the correct minimum wage, you have the right to report it to the HMRC. They will investigate the matter and take appropriate action if necessary.
All employers in the UK must follow the National Minimum Wage legislation and pay an employee at least the minimum wage for their age group. There are some exceptions, as described above, but if you fail to comply you can be fined as this legal responsibility is in place to protect employees.
To stay compliant, make sure that you know the current minimum wage rates (updated each April) and that your payroll software or provider follow the updates.