The terms National Minimum Wage, National Living Wage, and Living Wage are often banded about when it comes to payroll but there is confusion about what they all mean and how they can affect your business and staff. With recent changes coming into effect April 1st, we’ve laid out the differences between the three and which you need to be paying your employees.
National Minimum Wage
The National Minimum Wage is the legal minimum amount that an employer can pay hourly. As of 1 April 2017, the figures are:
- Apprentices – For apprentices under 19 or in the first year of their apprenticeship they will be paid a minimum of £3.50 per hour. Otherwise, they will be paid according to their age.
- Under 18 – £4.05
- 18 to 20 – £5.60
- 21 to 24 – £7.05
- 25 and over – £7.50
National Living Wage
The National Living Wage is the brainchild of former chancellor George Osbourne. The scheme came into effect in April 2016 and is designed to bring the minimum wage for workers aged 25 and over up to £9 an hour by 2020. What this essentially means is that the National Living Wage is the National Minimum Wage for over 25s.
Living Wage is another similar term that is talked about in relation to staff pay. In contrast to the two above, it is voluntary, not statutory. The Living Wage is independently calculated each year and is based on what employees and their families need to live. The current figures are:
- £9.75 in London for over 18s
- £8.45 across the UK for over 18s
These figures are recalculated every November and for those companies that opt into the scheme, there is accreditation available.
Update December 2018: the real living wage has increased by 2.9%.
Deciding whether to pay Living Wage or the National Minimum Wage can be a tricky decision. The Living Wage Foundation reports an 80% “improvement in staff performance” and a “25% reduction in staff turnover on average” in London.
Trace Payroll’s managed payroll services can help with any payroll needs your company has. Get in touch using the details below to find out how we can help you.