Employers Guide To The National Minimum Wage

In October 2015 new national minimum wage rates were introduced in the UK and with the news that the national living wage will be introduced in April 2016, there’s a lot to consider as an employer about these two legal rates of pay that you must offer your employees. Here’s a guide for employers on everything you need to know about them and how they affect your business.

Rates

The national minimum wage is now £6.70 per hour for employees aged 21 and over, £5.30 for employees aged 18 to 20 and £3.87 for employees under 18. Take note, however, that employees under 18 can only be legally employed if they will have turned 16 by the end of school summer holidays of the year in question.

These rates apply to any kind of employee, regardless of whether they are full-time, part-time, a casual worker, an agency worker, trainee or an apprentice (though slightly different rates apply to apprentices who are under 19 years old or are over 19 but in their first year of the apprenticeship: in that case, the rate is £3.30 per hour).

The only cases in which workers are not entitled to the national minimum wage are if they are self-employed, volunteers or the company director themselves.

No other factors can legally influence a worker’s right to receive the national minimum wage such as race, religion, nationality, sexual orientation, gender identity or any other physical considerations.

Legal implications

The national minimum wage applies to every business, no matter how big or small it is. There are several legal implications for your business that are important to keep in mind. Failing to meet it is a criminal offence.

If you have a contract with an employee that states a rate of pay lower than the national minimum wage, then the contract is automatically invalid. Also, you will be required to pay the employee in arrears to make up previous payments to reflect the national minimum wage for the duration of their employment.

In this case, you may also be liable to pay a penalty to HMRC for having failed to meet the legal requirement of paying all your employees the national minimum wage.

HMRC intervention

The HMRC can investigate what employers are paying their workers at any time and request payment records, which they may do at random or as a result of an employee complaint. If an employee correctly believes you have been paying them below the national minimum wage and you refuse to pay the arrears, then HMRC can eventually take you to court on behalf of the employee.

Calculating your employees wages

When calculating your employee’s wages, you must take into account that the calculation should include income tax and national insurance contributions paid directly by you out of the employee’s wage. You do not need to include such things as travel to work or tools the worker has bought themselves that you do not reimburse for when making the calculations.

The new national living wage

As of April 2016, in addition to the national minimum wage, the national living wage will be introduced. This applies to all workers 25 years and older, and will be £7.20 per hour. Just like the national minimum wage, its payment to your employees will be compulsory and failure to meet it may result in fines and require you to pay arrears to employees who did not receive it.

In addition, there has been a push by the Living Wage Foundation for employees to go beyond the legal minimum and offer a voluntary £8.25 per hour to their workers. While this is not compulsory, it may make good sense for your business as you’ll have an easier time attracting and keeping happy employees.

Keep informed

Make sure you are well informed and up to date about the national minimum wage and any changes to as this will keep you from being caught out and fined by HMRC. Since it increases every year, it is important to make sure you have up to date information on this subject and speak to your accountant to make sure you’re not falling foul of the legislation.

Avatar for Andy Hyland
Andy Hyland is the owner of AK Tax & Accountancy, the best accountants Kent has to offer. Andy and his team work with businesses across the UK using the latest cloud accounting technology to help them grow and succeed.

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