What Employers need to know about the National Minimum Wage and National Living Wage

On 1st October 2016, the National Minimum Wage and Apprentice Rate increased. Now, all employers need to make sure they are ready. HMRC has investigated more than 70,000 employers and has the right to carry out checks at any time and ask to see payment records. 

National Minimum Wage Bands:

The current rates for the National Minimum Wage are:

  • For 16 – 17 year olds – £4.00 an hour
  • For 18-20 year olds – £5.55 an hour
  • For 21-24 year olds – £6.95 an hour

The Apprentice Rate, available to individuals working as apprentices and aged under 19 years, is £3.40 an hour.

The National Living Wage is available to those aged over 25 years. This rate has recently been increased to £7.20 an hour.

The recent increases come following recommendations from the Low Pay Commission to increase the rates to better accommodate 21-24 year olds. The introduction of the National Living Wage established a new pay floor and this caused concerns for 21-24 year olds who saw the lower rate as unfair, whilst those receiving the National Living Wage faced being priced out the market.

Paying the National Minimum Wage

All employers must pay the National Minimum Wage, those that discover they have underpaid a worker must pay the arrears immediately. If an investigation shows that payments have been below the correct minimum wage, the employers will be fined and offenders could be named. Payment of the correct minimum wage must be recorded by the employer and these records will need to be kept for three years.

The minimum wage is paid according to the pay reference period. This is set according to how often a person is paid. The minimum wage must be paid, on average, to the worker for the time worked in the pay reference period.

Calculating the Minimum Wage

Some payments made by workers are not included when calculating the minimum wage. These include: payments which are made for the employer’s own use or benefit, for example, if the employer pays for travel to work. It also excludes items bought for the job such as uniform, tools or safety equipment.

Other payments are included in the calculation of minimum wage, these include; income tax and national insurance calculations; wage advances or loans (and the repayment of); repayment of over-wages; items the worker paid for that were not needed for the job or paid for voluntarily; accommodation provided by an employer above the offset rate (£6 per day or £42 per week); and penalty charges for a worker’s misconduct.


John is 27 and works 40 hours a week. He earns £7.20 per hour or £288 a week. He pays £15 a week to rent his uniform and the money isn’t refunded. He also chooses to eat in the canteen, and pays £20 per week for his meals.

To calculate his minimum wage, John’s employer must deduct the uniform rental from the pay but not the money paid for meals. This means John makes £273 per week (£288 minus £15) which is £6.83 per hour. This is below the minimum wage rate of £7.20.