The National Living Wage and the National Minimum Wage

What Are NLW and NMW?

The National Minimum Wage (NMW) is the legal minimum hourly pay that most workers in the UK must receive. The National Living Wage (NLW) is a higher rate that applies to workers aged 23 and over (the age threshold can change with government policy). These wage standards are set by the UK Government and updated annually to reflect economic conditions and recommendations by the Low Pay Commission.

The aim is to ensure that workers receive a fair baseline income for their work.

Who Must Be Paid the NLW and NMW?

Most workers are entitled to the National Living Wage or the National Minimum Wage, including:
• Employees under a contract of employment
• Workers on zero‑hour contracts
• Part‑time workers
• Agency workers

There are limited exceptions, such as some apprentices, interns in qualifying training programmes, and family members working in a family business without a formal contract. It’s important to check the specific rules if you think an exception might apply.

How the Rates Work

Each year, the UK Government sets different rates for:
• National Living Wage – the highest rate
• National Minimum Wage for workers aged 21–22
• National Minimum Wage for workers aged 18–20
• National Minimum Wage for workers aged under 18
• Apprentice rate (for qualifying apprentices)

These rates can change each April following a review by the Low Pay Commission, and employers must stay up to date with the current rates.

Calculating NLW and NMW

To calculate whether your workers are being paid the correct minimum:

1. Include all eligible pay elements: Basic hourly pay, salary, piecework earnings, certain bonuses and commission when they can be allocated to hourly pay.

2. Divide pay by hours worked: The total pay for the pay period is divided by hours worked to get the effective hourly rate.

3. Ensure the resulting rate meets or exceeds the applicable NLW or NMW rate: If not, adjust pay or hours to ensure compliance.

Automatic enrolment pension contributions by the employer do not count towards the minimum wage calculation, but employee contributions do count.

What Counts as Working Time?

When calculating the minimum wage, hours typically include:
• Time spent working at the workplace
• Time the worker is required to be available at or near the workplace
• Training time if the worker is required to attend

Deductions from pay — such as for lateness or disciplinary fines — must not reduce pay below the legal minimum after calculation.

Record Keeping Requirements

Employers must keep accurate records that show:
• Hours worked by each employee
• Gross pay for the period
• The way pay is calculated

Records should generally be kept for at least three years and be available for inspection if HMRC requests them. Good record keeping protects both your workers and your business.

Penalties for Non‑Compliance

Failure to pay the NLW or NMW can lead to:
• Back pay orders to repay workers the underpaid amount
• Penalties calculated as a percentage of arrears
• Publication of your company name on an HMRC “name and shame” list

Prompt correction and voluntary disclosure can reduce penalties, but the best approach is proactive compliance.

Common Issues Employers Face

Common pitfalls include:
• Misclassifying workers as self‑employed when they are workers for NLW/NMW purposes
• Incorrectly including auto‑enrolment employer pension contributions in pay calculations
• Failing to update pay rates after annual increases
• Inaccurate recording of hours worked

Understanding these issues helps you avoid costly mistakes.

How Applegrow Can Help

Applegrow Financial Advisors can support you in:
• Reviewing pay structures and contracts against NLW/NMW requirements
• Implementing compliant payroll systems
• Training HR and payroll staff on minimum wage obligations
• Helping you respond to HMRC compliance checks

We provide clear, practical advice so you can advance your business with confidence while treating your workforce fairly.