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Limited Companies- Paying Your Employees

10/01/19 | Advice & Guidance, Business, Limited Company

If you’re a small business owner with employees, there are many things you should be aware off and knowing the difference between the National Minimum Wage, the National Living Wage and the living wage is vital to ensure your employees get paid correctly.

The National Minimum Wage

The NMW is exactly as it sounds. It is the minimum pay per hour workers of school leaving age are entitled to by law and is reviewed yearly by the government. The rate for each age group in the UK is different and has been regulated by the Low Pay Commission since 1999.

There are, however, a few exceptions where the NMW doesn’t apply, including:

  • Self-employed people running their own business
  • Company directors
  • Volunteers or voluntary workers
  • Family members of the employer living in the employer’s homeThe rates change yearly in April. Here are the existing and forecasted rates for 2019;
  •  
Year 25 and over 21 to 24 18 to 20 Under 18 Apprentice
April 2018 (current rate) £7.83 £7.38 £5.90 £4.20 £3.70
April 2019 £8.21 £7.70 £6.15 £4.35 £3.90

 

Apprentice Minimum Wage –

The NMW for apprentices applies to all those aged under 19 employed on a Contract of Apprenticeship, and apprentices aged 19 or over in the first year of their Apprenticeship. It must be paid for all the time the apprentice spends working and all their time spent training. After this, the apprentice must be paid the normal NMW for their age.

 

The National Living Wage

Despite using the term living wage, the National Living Wage is in fact a minimum wage rate for those aged 25 and over. Anyone above this age and not in the first year of an apprenticeship has to be paid £7.83 per hour or above. NLW has nothing to do with Living Wage nor should it ever be confused with it.

Launched under former chancellor George Osborne in 2015, it represents the government’s aim of raising the wages of those aged 25 and older to £9 an hour by 2020. The decreed hourly rate will change each year in April until it reaches the £9 target.

 

The Living Wage

The Living Wage, sometimes referred to as the ‘Real’ Living Wage, is an hourly rate based on the basic cost of living in the UK. The NLW is calculated by the Government based on a proportion of the median level of earnings, whereas the Living Wage is calculated independently of Government and is based on the amount people need to get by. Companies can voluntarily adopt it, but know that it means paying a higher sum of money to staff.

The current London Living Wage is £10.55 per hour and this covers all boroughs in Greater London. For all areas outside of London, the Living Wage is £9.

Since the NLW is based on a proportion of earnings (the Government has a target to achieve 60% of median earnings by 2020) it’s not surprising that the NLW is lower than the Living Wage. But many see the Living Wage as a more realistic calculation of how much a worker needs to earn in order to meet the basic cost of living, such as rent, food, and utility bills.

According to the Living Wage Foundation, the main benefit of paying workers the Living Wage is that it can increase employee retention, decrease absenteeism, and enhance the quality of work produced.

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