What is the National Living Wage?

We are all well aware of the national minimum wage, but soon to be introduced is the national living wage. Not sure what it is? Let me explain.

The national minimum wage was first introduced way back in April 1999 when Labour were in power by the Low Pay Commission. Its started at just £3.00 per hour for those aged 18 to 21, and £3.60 per hour for workers aged 22 and above. It has slowly increased over the years – in October 2010 the rates had increased to £4.92 per hour for those aged 18-20 and £5.93 per hour for people aged 21 and over. 2004 saw an introduced rate for 16-17 years olds at £3.00 per hour, with another rate introduced at £2.50 per hour for apprentice workers in 2010.

Current rates are £6.70 per hour for those aged 21 and over, £5.30 for 18-20 year olds, £3.87 if you are under 18 and £3.30 per hour for apprentice workers*.

However, from the 1st April 2016, the “National Living wage” will be introduced within the system for most employees in the UK aged 25. There are, however, some exemptions including self employed people, company directors and family members.

The rate will be initially set at £7.20 per hour, an increase of 50p if you are currently earning the national minimum wage. The current minimum wage will still apply for those under 25 years old. The rate will be compulsory and failure to pay workers will result in a maximum fine of £20,000 per employee as well as penalties at 200% of the amount owed.

Alongside the national minimum wage and national living wage there is another recommended wage rate confusingly called the living wage. This is a voluntary rate set by the Living Wage Foundation. It is calculated according to what the foundation see as the basic costs of living in the UK. The current rate is £8.25 for most of UK workers, with an increased rate of £9.40 per hour for those working in London.

The introduction of the national living wage is set to cost employers more in the UK, but to help compensate this the government has increased the employers NI allowance to £3,000 per year from £2,000 per year from 6th April.

If you’re confused by the all the changes I can take care of your payroll for you. Prices start from only £10 per month. Call now on 0800 8654330 or 07857 380805 or email lauren@helloaccountancy.co.uk for more information.

*This rate is for apprentices aged 16 to 18 and those aged 19 or over who are in their first year. All other apprentices are entitled to the National Minimum Wage for their age.