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What is the national minimum wage? A guide for employers

3-minute read

What is the national minimum wage? A guide for employers
Catriona Smith

Catriona Smith

17 June 2021

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The government sets a national minimum wage and a national living wage to guarantee the lowest paid workers get a minimum standard of pay. This is a legal requirement for all businesses of any size, so read on to make sure you’re complying with the latest rates and check the rules for different age groups and apprentices.

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National minimum wage – 2021 guide for employers

The UK minimum wage is set at an hourly rate. This means that even if your employees are paid an annual salary or by the number of items they make, you’ll need to work out the equivalent hourly rate.

If you’re self-employed and running your own business or if you’re a company director, you aren’t entitled to national minimum wage or national living wage.

What is the National Minimum Wage Act 1998?

The National Minimum Wage Act 1998 was introduced to make sure that the lowest paid workers are paid fairly while protecting employment.

Be aware that contracts with a lower rate of pay aren’t legally binding – and not complying with the law on minimum wage can lead to an investigation from HMRC.

When does the national minimum wage go up?

The minimum wage rates change every year on 1 April.

An increase in the rates in April 2021 effectively gave a significant pay rise to workers on the minimum wage and living wage. For example, the living wage increased by 2.2 per cent to £8.91, which works out at more than £345 extra a year for someone working full time.

National living wage vs minimum wage – what’s the difference?

In April 2016, the government introduced a new minimum rate of pay for workers who are at least 25 years old – this is called the National Living Wage. And changes in April 2021 mean that more younger people are eligible for the wage as the threshold now includes anyone aged 23 and over.

While the rate isn't necessarily based on the cost of living, the government set a target to increase the living wage to two-thirds of median earnings of all employees across the country by 2024. This was achieved in 2021 following recommendations from the Low Pay Commission.

So to summarise, the difference between the national minimum wage and living wage is related to someone’s age:

  • the living wage applies to workers aged 23+
  • the minimum wage applies to workers aged 16 to 22
  • apprentices aged 16 and 17 get a different rate of pay

Look out for more changes by 2024 where the living wage is expected to extend again to include 21 and 22 year olds.

What’s the real living wage?

The national minimum wage shouldn’t be confused with the voluntary London Living Wage and UK Living Wage, which is calculated based on real living costs and isn’t connected to the government.

Set up by the Living Wage Foundation, the Living Wage is a campaign that encourages employers to pay a wage that reflects everyday costs in London and the UK. According to their data, the ‘real living wage’ in 2021 is £9.50 for the UK and slightly higher in London at £10.85.

What is the current national minimum wage?

National minimum wage – under 25 threshold is now under 23

As mentioned earlier, the minimum wage now applies to workers under the age of 23. These are the rates from April 2021:

  • 21 and 22 year olds - £8.36
  • 18, 19, 20 year olds - £6.56

National minimum wage for 17 year old workers

From April 2021, the minimum wage rate for 16 and 17 year olds was increased to £4.62 an hour.

What are the rates from April 2021?

The current national minimum wage, living wage, and previous rates are shown below.

Hourly rate from April 2020Hourly rate from April 2021
National living wage£8.72£8.91
21-22 year old rate£8.20£8.36
18-20 year old rate£6.45£6.56
16-17 year old rate£4.55£4.62
Apprentice rate£4.15£4.30
Accommodation offset£8.20£8.36

To check if you’re paying the correct minimum or living wage to your employees, you can use the government’s national minimum wage calculator.

Keep records

As a business owner it’s important to keep accurate records, and this includes proof that you’re paying employees at least the minimum wage. This could be payroll records to show total pay and hours worked as well as any contracts and agreements.

You must keep these records for at least six years if they were created on or after 1 April 2021 (or if you still had records on 31 March that you needed to keep under the previous three-year rule).

Our guide to record keeping goes into more detail about other records you have to keep for your business, and for how long. Or check out our comparison guide on the best accounting software out there for small businesses – some of which include a useful payroll feature.

Is there anything else you would like to know about the minimum and living wage? Let us know in the comments.

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We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer

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