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Minimum wage

The rates of pay set by the National Living Wage (NLW) and National Minimum Wage (NMW) increased on 1 April 2023. Those employers that flout the NMW laws now risk more than just being fined and forced to repay underpayments. HMRC keeps a public ‘name and shame’ list of offenders. Here, we take a look at the new rates and what to do to make sure you comply.

The NLW and the NMW

Anybody working aged 23 or over and not in the first year of an apprenticeship is legally entitled to the NLW.

Despite its name, this rate is essentially a NMW for the over 22s. The government is committed to increasing this every year.

The NLW rate changes every April, while the NMW rates have traditionally been revised in October. However, since April 2017 the NMW and NLW cycles have been aligned so that both rates are amended in April each year. Employers will need to make sure they are paying their staff correctly as the NLW will be enforced as strongly as the NMW.

The table below shows the NMW and NLW rates applying from 1 April 2023:

  Apprentice* 16-17 18-20 21-22 23 and over
NMW £5.28 £5.28 £7.49 £10.18 -
NLW - - - - £10.42

*Under 19, or 19 and over in the first year of their apprenticeship

Who does not have to be paid the National Minimum Wage?

  • The genuinely self-employed.
  • Child workers - anyone of compulsory school age (i.e., until the last Friday in June of the school year they turn 16).
  • Company directors who do not have contracts of employment.
  • Students doing work experience as part of a higher education course.
  • People living and working within the family, for example au pairs.
  • Friends and neighbours helping out under informal arrangements.
  • Members of the armed forces.
  • Workers on government employment programmes such as the Work Programme.
  • People working on a Jobcentre Plus Work trial for up to six weeks.
  • People on the European Union Programmes: Leonardo da Vinci, Youth in Action, Erasmus+ and Comenius programmes.
  • Share fishermen.
  • Prisoners.
  • Volunteers and voluntary workers.
  • People living and working in a religious community.

Beware the family company trap

Although there is an exemption for family members working in the family business and residing in the family home of the employer, the Regulations specifically refer to the employer’s family. If the family business (i.e., the employer) is a limited company, then it does not have a family. Even if the family business operates as a sole trader or partnership, the only family members exempted are those who actually live in the home of the employer.

Breaching NMW laws

The government can impose penalties on employers that underpay their workers in breach of the minimum wage legislation. The penalty can be as much as 200% of arrears owed to workers. The maximum penalty is £20,000 per worker.

The penalty is reduced by 50% if the unpaid wages and the penalty are paid within 14 days.

Periodically the government publishes a list of employers who have not complied. The reasons employers fail to comply vary and include topping up pay with tips and deducting sums for uniforms, among others.

Naming and shaming

HMRC has taken the step of ‘naming and shaming’ employers that have broken NMW laws in the past.

Following investigations by HMRC, the named firms had to repay £2.1 million to over 34,000 workers and were fined an additional £3.2 million.

The employers named by the government fell foul of the following NMW laws:

  • 47% wrongly deducted pay from workers’ wages, including for uniforms and expenses
  • 30% failed to pay workers for all the time they had worked, such as when they worked overtime
  • 19% paid the incorrect apprenticeship rate.

Calculating the NMW and NLW

Calculating the NMW and the NLW can prove to be complex. Please contact us to discuss any concerns you may have over this or any other payroll matters.