National Minimum Wage - what has changed and what changes can we look forward to?

Let’s start with a quick recap of the basics:

What is it?

The NMW is the minimum hourly rate which most workers over compulsory school age are entitled to. There are some narrow, excluded categories which will not affect the majority of you. These include: non-executive directors, “family workers” (namely, workers who live in their employer's family home, are treated as a member of the family and are not charged for food or accommodation) and students on work experience placements of up to one year (provided that the placement part of a UK-based higher education or further education course).

All employers are obliged to pay the NMW, irrespective of their size, and the hourly rates payable depend on the age of the worker.

The NMW increases each year following a review by the Low Pay Commission, and this year was no exception.

What has changed?

From 1 October 2015, the NMW rates increased to:

• £6.70 - for workers aged 21 and over;
• £5.30 - workers aged 18-20;
• £3.87 - workers aged 16-17 years (who are school leaving age); and
• £3.30 - apprentices under 19 years, or 19 or over but in their first year of apprenticeship.

These changes have been publicised as the largest real-terms increase in the NMW since 2007 and the largest ever increase in the NMW for apprentices. Try to contain your excitement!

What is the National Living Wage, and when will it kick in?

As part of this year’s Budget, the government announced its plan to introduce a premium (over and above the NMW) for workers aged 25 and over. This will be known as the National Living Wage (NLW, for short).

The first “premium” is 50p and will be payable from April 2016. This will mean that workers aged 25+ will effectively have a higher NMW of £7.20 from that time.

What does this mean for you or your business?

As ever, it is vital to ensure that you are paying your workers the correct rates, as breaches of the NMW may lead to civil and criminal enforcement action by HMRC and/or employment tribunal claims by your workers, including unlawful deductions and breach of contract.

What do you need to be doing now?

Make sure that you are paying the correct rates, and start paying them if you are not already.

You should also ensure that you keep the records required by the National Minimum Wage Act (please check what these are if you are unsure), so that you can demonstrate that your workers have received the updated NMW rates if challenged by HMRC or your workers.

These notes have been prepared for the purposes of this article only. They should not be substitute for taking legal advice. 

These notes have been prepared for the purpose of articles only. They should not be regarded as a substitute for taking legal advice.