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Every UK business, no matter how small, is legally required to pay at least the National minimum wage. As a responsible employer, it’s important to understand the different wage brackets for your workers and to stay up to date with the minimum and living wage thresholds.
To keep up with the cost of living, the national minimum and living wage is updated every year. Our easy guide explains everything you need to know about minimum wages for small businesses.
What is minimum wage?
The national minimum wage is the minimum rate of pay per hour that every worker in the UK is legally entitled to. This standard was introduced by the 1998 National Minimum Wage Act, which aims to ensure the lowest-paid workers are fairly compensated.
Every employer in the UK must pay workers the national minimum wage. The rate you pay your workers is based on their age, with four bands ranging from under 18 to over 23.
Businesses paying employees less than minimum wage can face an investigation from HMRC, so it’s important to stay informed on the annual increases to minimum and living wages.
What is the national living wage?
Since 1 April 2021, anyone aged 23 or over has been entitled to the National Living Wage. Previously, when it was introduced in April 2016, this applied to workers aged 25 and over.
The main difference between the national living wage and the minimum wage is that the living wage is higher – it reflects the minimum pay an employee is considered to need to cover essential living costs (i.e., rent, bills, food, travel). From 1 April 2023, the national living wage increased to from £9.50 per hour to £10.42 per hour.
Keep an eye on this though, as by 2024 the age band for the national living wage is expected to be lowered to 21. The government has also set a target to increase the living wage to two-thirds of median earnings of all employees in this timeframe.
What is the real living wage?
Not to be confused with the national living wage, the real living wage is a rate that is voluntarily paid by employers (over and above the required minimum wage) to keep up with the realistic cost of living.
Here’s some quick facts about the real living wage:
- The real living wage is calculated by the Living Wage Foundation based on the cost of living, while the government calculates national minimum and living wages based on recommendations by small businesses and trade unions.
- The ‘real living wage’ also includes a London weighting – as of 2019, the cost of living in London is up to 15-58% higher than the rest of the UK.
- The real living wage is paid by almost 9,000 UK businesses.
- The real living wage for 2022-23 is £10.90 across the UK and £11.95 for London.
Who is entitled to the national minimum wage?
Every UK worker of school leaving age (16) is entitled to the national minimum wage, or the national living wage if they’re over the age of 23. As an employer, the minimum wage you pay your workers depends on their age.
The same applies to employees who are on a zero-hours contract, casual working hours or doing an apprenticeship. It also applies if the employee is doing work away from the employer’s premises, such as remote working or working on site.
If you have employees, remember too that you’re required by law to set up employers' liability insurance. Luckily, we have this base covered with Superscript’s flexible cover, which protects your business and your workers’ wellbeing.
Work experience placements, student interns, charity volunteers and work shadowers are not legally entitled to the national minimum wage, but you may choose to pay expenses at your discretion.
Interns who do regular paid work for a business or have been promised a contract of future work are classed as workers by the government, and are therefore entitled to national minimum wage.
What is the national minimum wage in the UK?
On 1st April 2023, the UK national minimum wage rose from £4.81 to £5.28 for under 18s and the UK national living wage goes up from £9.50 to £10.42.
These rates are the same across the whole of the UK (including Wales, Scotland and Northern Ireland) and London.
Here are the full rates for UK national living wage and national minimum wage rates from 1st April 2023:
|Rate from April 2023|
|National living wage (23 and over)||£10.42|
Not sure what you should be paying? You can calculate the correct minimum wage for your workers using the government’s minimum wage calculator.
When does the minimum wage increase?
Helpfully, the new government minimum wage increases come into effect on 1st April just before the start of the new UK tax year (6 April).
The national minimum wage and living wage rate both increase annually, so you can put that date in your diary along with reminders for the national insurance rate rise, increase in dividend tax rates and due date for late payment of self-assessment tax (also 1 April).
What should employers do?
As a small business owner, you should get into the habit of keeping accurate records of payroll, employment contracts and agreements to prove that you’re paying your workers the national minimum wage or living wage.
Keep on top of the following checklist:
- Check regularly that your payroll records are accurate and up to date.
- Keep your records for at least six years if they were created on or after 1 April 2021.
- Keep your records for at least three years if they were created on or before 31 March 2021.
- Purchase employers' liability insurance before hiring any workers, apprentices or interns for your small business.
- Set a calendar reminder to check the increases to the national minimum and living wages on 1sr April every year.
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This content has been created for general information purposes and should not be taken as formal advice. Read our full disclaimer.
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