Payroll is a complicated process, and the abundance of financial terminology can sometimes be overwhelming. Unless you’re a professional, it can also lead to confusion and errors, particularly when similar terms get mistaken for each other.
Two phrases which are frequently misunderstood are the National Living Wage and National Minimum Wage. Many people believe they are one and the same, but they’re not, and it’s important for employers to understand the difference or it could create payroll problems.
The National Minimum Wage is the lowest amount of pay almost all workers are entitled to, whereas the National Living Wage is higher and depends on the age of the employee. Over the age of 23 all workers should be on the National Living Wage.
National Minimum Wage
The National Minimum Wage Act came into being in 1998 and took effect on 1 April 1999.
The minimum wage a worker should be paid depends on their age and whether they are an apprentice. It’s set annually by the government and changes at the beginning of the financial year in April; it’s applicable to every employee, providing they are of school leaving age, regardless of their position in the business, with a few exceptions:
- People who have chosen to do voluntary work
- Company directors
- Armed forces personnel
- People undertaking work experience as part of a course of study
- Family members of the employer living in the employer’s home
The current rates per hour as of April 2023 for the National Minimum Wage are:
£10.42 for workers aged 23 and over
£10.18 for workers aged between 21 and 22
£7.49 for workers aged between 18 and 20
£5.28 for workers aged under 18
£5.28 for apprentices
As of April 2024, these rates will increase to:
£11.44 for workers aged 21 and over
£8.60 for workers aged between 18 to 20
£6.40 for workers aged under 18
£6.40 for apprentices
National Living Wage
All UK workers over the age of 23 have to be paid the National Living Wage which is currently £10.42 per hour. However, from April 2024, this will rise to £11.44 per hour, an increase of 9.8%. It will also be extended to include all adults aged 21 and over. This is the same as the National Minimum Wage. It’s below the age of 21 where differences lie between the two.
It’s a criminal offence to employ workers and not pay them the National Minimum Wage or National Living Wage. If you have paid employees less than this then payment should be made in arrears immediately. In addition, if HMRC finds out that you haven’t been paying the correct rates, you could be liable for a fine; its inspectors can ask to check your payroll records, which you are obliged to keep for at least six years.
At AMR Bookkeeping Solutions we have a wealth of experience in running payroll for all types of business. By handing your payroll over to the professionals, you know that everything is being done meticulously, on time and with full compliance with all HMRC’s requirements. Whether you employ one worker or hundreds, we can take the payroll workload off your shoulders. If you’d like to learn more, why not get in touch with our friendly and helpful team? Contact us on our website or call 01892 559480.
