As you hopefully know, all workers are entitled to be paid at a rate which is not less than the national minimum wage.

Currently, there are four categories of worker, each of which benefits from a different rate of the national minimum wage.

However, from 1 April 2016, a fifth category of worker, aged 25 and over, will be introduced. Those workers will be entitled to be paid the national living wage.

What is the living wage?

A 50p premium will be applied to the national minimum wage rate for workers over 25 years old, from 1 April 2016. This means that the minimum wage for workers aged over 25 will be £7.20. It is estimated that this will affect six million people.

That's a £910 per annum increase in earnings for a full-time worker on the current national minimum wage.

The category of worker has faced some criticism, with concerns that that employers may cut back on recruitment, and might be inclined to only employ people aged below 25. However, adopting such a strategy is likely be discriminatory on the grounds of age, and therefore to be unlawful. It is also anticipated that up to 60,000 people will loose their jobs as the increase stops their position being affordable.

Many have received the increase well, however, with some employers, for example, the high street retailer, Oliver Bonas, proactively increasing their wages so that employees of all ages receive the 'Living Wage' (actually calculated even higher than the national living wage, at £7.82 per hour), following the lead of Ikea.

New National Minimum Wage rates

The rate of the national minimum wage is set by the Government. Alongside introducing the new living wage, the rates for the other categories of worker will also be increased as of 1 April 2016, as set out below:


Rate between 1 Apr 2016 – 30 Sep 2016

Rate between 1 Oct 2016 – 31 March 2017

Apprentice rate: For apprentices under 19 or who are in the first year of their apprenticeship



Young workers rate: For 16 and 17 year olds



Development rate: For 18 to 20 year olds



Standard adult rate: For 21 to 24 year olds



National Living Wage: For those aged 25+



Continued Increases

This increase to minimum wages is the first step in a number of stages which propose that there will be a minimum wage of £9.00 per hour from 2020.

How do I calculate the national minimum wage?

An individual's hourly rate of pay is determined by:

a) the total remuneration they receive in a "relevant pay reference period" – this is usually one month (or a shorter period if the worker is paid by reference to such shorter period, e.g. a week if they are paid weekly); and

b) the total hours that they work during that reference period.

Remuneration includes both the individual's basic salary as well as incentive payments such as commission and bonuses.

Can the cost of other living-in be taken into account?

Yes, if the employer provides free accommodation, the employer can apply an "accommodation allowance". However, this is limited to a maximum of £5.35 per day (rising to £6.00 from 1 October 2016).

If the worker pays rent to the employer for the accommodation (rather than it being free), the accommodation allowance can still be applied but any amounts paid in excess of this limit must usually be deducted from the minimum wage calculation. This will therefore reduce the overall rate of pay that they receive.

Can the cost of other benefits be included in the calculation?

No, other types of benefits in kind (for example, tips, free meals) do not count towards the national minimum wage calculations. The only benefit in kind that can be taken into account is accommodation (see above).

Does on-call time count towards the hours worked?

Generally speaking, the time where an individual is not working but is required to remain available at or near their workplace so that they can carry out work if it is required will count as working time. However, there are exceptions to this, for example, where the individual is permitted to sleep and suitable sleeping facilities are provided.

What happens if I do not pay the national minimum wage?

If workers are paid below the minimum wage, they are able to bring a claim against their employer to recover the arrears. The penalty for non-payment will be 200% of the amount owed, reduced to 100% if the arrears are paid within 14 days.

The maximum fine for non-payment will be £20,000 per worker. However, employers who fail to pay can be banned from being a company director for up to 15 years.

HM Revenue & Customs (HMRC) may also take enforcement action, which can even lead to criminal prosecution in rare cases. However, more commonly, a notice of underpayment is issued by HMRC and the employer is subsequently named and shamed in a Department of Business, Innovation and Skills (BIS) list.

This article was written by Rose Branson, Solicitor, Employment department with contributions from Katee Dias, Senior Solicitor, Employment department and Sona Voreux, Trainee Solicitor.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.