Posted November 10, 2016

What’s the difference between the Living Wage and the Minimum Wage?

Does your business have employees? Are you paying them enough?  Not knowing the difference between the Living Wage, the National Living Wage and the National Minimum Wage could result in large penalties for failing to pay employees correctly.

To help clarify, here is a summary of the three main terms relating to wages:

National Minimum Wage

The National Minimum Wage (NMW) is set by an independent body (the Low Pay Commission), it is dependent on your age and whether you are an apprentice. The NMW rates increased on 1 October 2016 and will increase again in April 2017.  The rates that will apply from April 2017 have not yet been released.  The current hourly NMW rates are as follows:

The NMW is applicable to every person over school leaving age, with the exceptions being:

The self-employed running their own business

Company directors without an employment contract

Volunteers or voluntary workers

Family members of the employer living in the employer’s home.

National Living Wage

The National Living Wage (NLW) was introduced on 1 April 2016. The NLW applies to everyone over 25 years of age not in the first year of an apprenticeship.  The current NLW is £7.20 per hour.

Businesses that don’t pay the NLW to entitled workers could be disqualified from being a company director for up to 15 years and receive a financial penalty.

The Living Wage

The Living Wage (LW) is calculated by the Living Wage Foundation and is based on the basic cost of living in the UK. The Living Wage Foundation has calculated the Living wage in the UK as £8.25 per hour and £9.40 per hour in London.  However, as the Living Wage Foundation is a campaigning organisation it does not have any legal grounding.

The NLW is a Government figure calculated on average earnings and not the cost of living. Many therefore see the LW as a more realistic expectation of how much a worker needs to earn in order to meet the basic costs of living.

Supporters of the LW, state that paying the LW increases staff performance, and reduces staff turnover and absenteeism.

Whether or not you decide to pay your employees the Living Wage, the important thing to remember is that failure to pay the NMW could land your business with a large fine.

For assistance with your payroll or for further information, please contact us.

The information contained above is provided for information purposes only and is not intended to amount to advice on which reliance should be placed. We therefore disclaim all liability and responsibility arising from any reliance placed on such information. Professional advice should be obtained before taking or refraining from taking any action as a result of the above contents.